Trump’s U-turns on Powell, China follow dire economic warnings

CONFRONTED with fresh warnings from financial markets, business leaders and top advisers, President Donald J. Trump this week eased off on two of his frequent punching bags: Jerome H. Powell and China.

Mr. Trump entered office with a steadfast desire to reshape the global economy. But his resolve has appeared to waver in the face of turmoil in equities and bonds and pleas from powerful executives who fear his sweeping tariffs and interference with the US Federal Reserve could set off an economic calamity.

Mr. Trump on Tuesday said he had no intention to fire Mr. Powell — despite days of criticism over the central bank’s policies — and said he believed a deal with Beijing would significantly reduce the sweeping tariffs he’s posted on Chinese goods. After a report that the US would be willing to phase in lighter tariffs on Beijing over five years on Wednesday, Mr. Trump told reporters that China was “going to do fine” once talks had settled.

Mr. Trump’s turnabout eased investors’ concerns that had fueled a weeks-long sell-off.

Still, the whiplash underscores that markets and the economy are beholden to the whims of the US president unlike ever before — a sign that more turmoil lies ahead.

Mr. Trump made his about-face on Tuesday, saying he’d be willing to “substantially” pare back his 145% tariffs on China. He turned down his aggressive rhetoric a day after meeting with executives from Walmart, Inc., Home Depot, Inc. and Target Corp., who said import taxes could disrupt supply chains and raise the prices of goods, according to people familiar with the matter. Warnings about the potential for empty store shelves within weeks seemed to resonate with Mr. Trump, one of the people said.

“We’re going to have a fair deal with China,” Mr. Trump told reporters on Wednesday.

Later, Mr. Trump mused that he could announce tariff rates for countries, including China, “over the next two to three weeks.” At the same time, Mr. Trump said the deadline would ultimately depend on whether China engaged.

“Depends on them,” Mr. Trump said. “We have a situation where we have a very, very great place. It’s called the United States of America, and it’s been ripped off for years and years.”

The Wall Street Journal reported Wednesday that administration officials are considering plans to slash tariffs on Chinese imports. Under the proposals, the range could come down to between 50% to 65% as a result of a tiered approach that would see 35% levies on items not considered critical for national security and 100% on those that are, gradually implemented over five years, the paper reported.

Mr. Trump is known to change his mind and his posture could shift yet again. And the reported offer — which may have been intended as a trial balloon to entice China back to the table — wouldn’t happen without action in the talks, a White House official said.

Treasury Secretary Scott Bessent echoed that caution on Wednesday, saying the US was not looking to unilaterally lower tariffs and that a full trade deal could take two to three years. His remarks pared some of the earlier stock gains.

“There will be no unilateral reduction in tariffs against China. The president has made it clear China needs to make a deal with United States of America, and we are optimistic that will happen,” White House Press Secretary Karoline Leavitt said on Fox News later Wednesday.

Mr. Bessent, when asked who the president consults on tariff and trade policy, said Mr. Trump is “constantly soliciting views” from business leaders, citing the visit from the major retailers and revealing that “the three largest German auto companies were in on Friday.”

The White House has yet to formally launch tariff talks with the Chinese government, though Mr. Trump said “everything’s active” when asked whether he was actively engaging with China.

“We’re going to be making money with everyone, and everyone’s going to be happy,” Mr. Trump said Wednesday. “We’re no longer going to be the country that’s ripped off by every country in the world.”

Mr. Trump’s efforts to will a China negotiation into reality dovetailed with his public show of support for Mr. Powell, at the urging of top advisers and allies.

Mr. Bessent recently advised Mr. Trump to indicate he was not looking to dismiss Mr. Powell and to make clear to markets he believes in an independent central bank, according to a person familiar with the conversations. Commerce Secretary Howard Lutnick has also been a voice of caution on the Fed, the Wall Street Journal reported.

Asked if he had spoken to Mr. Powell, Mr. Trump told reporters on Wednesday that he had not called the Fed chair but suggested he may do so.

“I might call him. I haven’t called him, but I believe he’s making a mistake by not lowering interest rates,” he said.

The pivot was a signal he’s become more sensitive to market movements and entreaties from advisers with Wall Street pedigrees, such as Mr. Bessent and Mr. Lutnick, after hawkish White House trade adviser Peter Navarro played a heavy hand in his April 2 tariff rollout.

Americans’ outlook for the economy has soured amid the uncertainties posed by Mr. Trump’s tariffs, with survey data showing a surge in expectations for future inflation. Many analysts have also taken a dimmer view of the US economy’s prospects, trimming their forecasts for growth and boosting those for inflation.

Mr. Powell has said the announced tariff increases have been larger than anticipated, and that the duties are likely to generate at least a temporary rise in inflation. He and other Fed officials have indicated they are willing to hold interest rates steady as they await clarity on how the tariffs are filtering through the economy.

“Our obligation is to keep longer-term inflation expectations well anchored and to make certain that a one-time increase in the price level does not become an ongoing inflation problem,” Powell said last week at the Economic Club of Chicago.

Even before the tariff announcements, Fed officials had taken an increasingly cautious view on inflation, as it hovered stubbornly above the central bank’s 2% target. Inflation as measured by the Fed’s preferred gauge was 2.5% in the year through February.

At the same time, the manufacturing industry is showing some weakness amid the fallout from tariffs. US manufacturing activity shrunk last month, according to the Institute for Supply Management. In New York, factory activity contracted in April for the second straight month, New York Fed data showed.

Mr. Bessent told a closed-door investor summit Tuesday that the world’s two largest economies will have to find ways to de-escalate and that the standoff was unsustainable. Mr. Trump later followed by saying that “we’re going to be very nice and they’re going to be very nice, and we’ll see what happens.”

Mr. Trump also said he didn’t see the need to “play hardball” with Chinese leader Xi Jinping and that during discussions he wouldn’t raise COVID-19 — an issue that is politically sensitive in Beijing. The White House recently launched a website that suggested the virus came from a lab in China, irking the nation’s diplomats.

Foreign Ministry spokesman Guo Jiakun said “the door for talks is wide open,” at a regular press briefing in Beijing on Wednesday, reiterating that trade wars don’t have any winners. While Mr. Trump has repeatedly sought to get Mr. Xi on the phone, China wants the two sides to work out the contours of an agreement before the leaders speak.

Asked by a reporter on Wednesday what the China tariffs have accomplished, Leavitt said “leverage” to bring countries to the negotiating table. When pressed about the lack of Chinese concessions, Ms. Leavitt responded: “Have some patience, and you will see.” — Bloomberg