If imitation really is the highest form of flattery, Xi Jinping’s economic team is surely blushing at Donald Trump’s China-style policy pivots.
US President Trump’s esteem for the Chinese leader has long been evident to geopolitical experts. But the last 10 days have seen a whirlwind of Trump policy moves that might shock even the Politburo in Beijing. Strong-arming Intel into a 10% stake and Nvidia into giving the White House a 15% taste of revenue will seem familiar to anyone who’s seen a decent mafia movie.
Ditto for Trump trying to intimidate Goldman Sachs into firing its chief economist for daring to state the obvious: Tariffs are inflationary. Or Trump sacking the head of the Bureau of Labor Statistics for reporting that US unemployment is slowing. Or directing his federal communications czar to revoke media licenses for organizations reporting what anyone outside the Trump bubble can see.
Trump’s White House acquisition of a “golden share” stake free of charge in Nippon Steel’s deal for US Steel exudes Politburo energy. His demanding a US$550 billion “signing bonus” from Japan — and other shakedown schemes from South Korea, the European Union and others — is out of the authoritarian toolbox.
This is the stuff of Mao Zedong – not Adam Smith or Ronald Reagan or even the US conservative think tank set over at the Cato Institute or the American Enterprise Institute. For a party with a long-honed strategy of calling foes “communists,” “socialists” and “Marxists,” Trump’s Republicans seem quite comfortable with the Sinoization of a once proudly capitalist nation.
By browbeating companies like Apple to produce in the US — offering tariff carveouts for corporations bowing to Trump World, the administration is effectively seizing the means of production.
Yet the most damaging gambit of all may be Trump’s effort to morph the staunchly independent Federal Reserve into the People’s Bank of China. Trump has long flirted with the idea of firing Fed Chair Jerome Powell. But this week, the rubber hit the road.
On Monday, Trump moved to fire Fed Governor Lisa Cook, whom former President Joe Biden named to the central bank in January 2022. Trump alleges mortgage fraud. Cook is pushing back, claiming Trump “has no authority to do so.”
Trump’s move is a “kill shot at Fed independence,” warned economist Aaron Klein at the Brookings Institution.
Kathy Jones, strategist at Charles Schwab & Co., told Bloomberg that “even if you don’t believe anything is going to come of this — that there won’t be any changes at the Fed — in the near term what it implies is, the risk premium for holding long-term Treasuries needs to go even higher.”
Analyst Tobin Marcus at Wolfe Research said that “although we think it could go either way, our guess is that the Supreme Court of the United States will uphold this move. The legal protections for the Fed chair and for non-chair governors are the same, so a SCOTUS ratification of this move would sharply erode Fed independence, and even the attempt to fire Cook raises obvious concerns.”
TD Cowen analyst Jaret Seiberg added that the blatantly political nature of Trump’s actions is a warning sign of what’s to come. “There has not been a criminal charge filed against Cook,” Seiberg said. “Nor has Cook gotten a chance to contest the charges before a judge.”
No matter where this goes, the damage is always done to the most globally respected US institution. Monday’s news sent the dollar lower and 30-year US Treasury yields and gold higher, a telltale sign investors worry looser monetary policy will fuel inflation.
A constitutional showdown over the US central bank is the last thing global markets need amidst a worsening trade war and geopolitical uncertainty. On top of this controversy, Trump is likely to have another #MAGA economist on the Fed Board in time for its Sept. 16-17 policy meeting.
Earlier this month, Trump named Stephen Miran, his likely-minded Council of Economic Advisors chairman, to the Fed board. Miran will serve out the rest of outgoing Governor Adriana Kugler’s term ending Jan. 31, 2026.
Miran could be the third dissenting voice on the Fed in favor of a Trump-style rate cuts. The July meeting saw two governors dissent from the majority for the first time in more than 30 years. Should Powell opt to leave rates unchanged next month, the pressure against him could be extreme.
If Trump gets his way in removing and replacing Cook, the Fed Board would be MAGAfied in ways that might be impossible to reverse in time to salvage any semblance of policy autonomy and credibility.
Trump’s state capitalism with US characteristics is certain to wreak havoc with America’s ranking on measures of press freedom and corruption. Another irony of Trump mimicking China to beat China is how the president is clearing the road for Xi’s economy going forward.
Consider how Trump’s state-directed assault on electric vehicles and renewable energy in general is ceding the future to Xi’s Communist Party.
In doing so, the US has forfeited a “major growth market” and “embraced a loser’s energy,” notes Jeff Kingston, head of Asian studies at Temple University’s Tokyo campus. “Beijing will be popping the champagne corks.”
China also stands to benefit from Trump’s tariff policies and determination to neuter the Fed, which undermines the dollar just as Xi is accelerating de-dollarization efforts.
In June, PBOC Governor Pan Gongsheng said Beijing is mulling “how to weaken excessive reliance on a single sovereign currency.”
Dan Wang, a director of Eurasia Group, said “China appears to be accelerating its de-dollarization efforts, though progress remains uneven.”
At the same time, “Trump’s policies have weakened the market’s confidence in the performance of US dollar assets,” said Gary Ng, economist at Natixis.
Likewise bad for confidence has been Trump’s shameless cribbing from the Chinese Communist Party playbook.
Follow William Pesek on X at @WilliamPesek
