Trump Asks the Fed Start a Currency War With China

Pump the Money

China will be pumping money into their system and probably reducing interest rates, as always, in order to make up for the business they are, and will be, losing. If the Federal Reserve ever did a “match,” it would be game over, we win! In any event, China wants a deal!

Lead image from Hedgeye with my anecdote in white.

Another Routine Lie

For starters, note the routine lie in Trump's Tweet. If China wanted a deal we would have one. More accurately, both sides have to want a deal.

But wanting a deal and demanding terms the other side cannot accept is an admission you really don't want a deal.

Currency War

The important point is not the routine lie which we expect daily from Trump, but rather his proposal for a currency war.

Trump explicitly stated he wants the Fed to pump money and cut rates to "match" China. That's a direct call for a currency war to debase the US dollar.

Manipulations - Two Means to an End

China pegs the yuan, allegedly keeping it undervalued.

But interest rate cuts are just another means to the same end. The US dollar is strong because the Fed is the only advanced nation that has been hiking. The ECB is still accumulating assets.

Interest rate and QE wars serve the same end as pegs, ceilings, and floors: competitive currency devaluation. Meanwhile, the manipulators (every nation) point the finger at China.

Why Now?

The key to Today's Tweet stems from today's import/export price report.

Agricultural Imports and Exports Synopsis

• Agricultural Exports: The price index for agricultural exports decreased 1.5 percent in April following a 1.0-percent advance in March. The April decline was driven by a 17.2-percent decrease in vegetable prices and a 6.8-percent decline in fruit prices. A 2.6-percent drop in corn prices also contributed to the overall decline in April. Prices for agricultural exports fell 2.8 percent over the past year. The 12-month decrease was led by a 14.1-percent drop in soybean prices. Lower prices for fruit, cotton, nuts, meat, and corn also contributed to the over-the-year decline in agricultural export prices.
• Foods, Feeds, and Beverages Imports: The price index for foods, feeds, and beverages rose 2.8 percent in April, the largest monthly advance since the index increased 3.1 percent in July 2016. The April advance was driven by higher prices for fruit, vegetables, and meat.

For details, please see Forecasters Miss Inflation Targets By a Mile: Steep Decline in Ag Export Prices.

Message Not Heard

Things got so serious in April that Iowa Senator Chuck Grassley warned "Trump’s Tariffs End or His Trade Deal Dies".

Trump did not heed Grassley's message.

Instead, Trump wants a currency war and a weak dollar to boost exports and reduce imports.

Soybeans at 2008 Lows

Soybean prices have been falling since 2012. Don't blame Trump for that. But his tariff tactics and China's retaliatory agriculture tariffs put the screws to the US.

See-Through Bluster