Trump Ignored Mnuchin Advice To Give China Early Notice On New Tariffs

Earlier today we reported that contrary to the conventional wisdom that Trump blasted off his 1pm China tariff tweet - in which he singlehandedly ended the ceasefire between the US and China when he unveiled 10% tariffs on $300BN in Chinese imports starting September - on his own, instead a number of officials were in the room with President Trump as he drafted this Tweet, advising him on language. Among those: Treasury Secretary Mnuchin, Acting COS Mulvaney, trade advisor Navarro, and NEC Director Kudlow.

Now, we also learn that ahead of hitting send on his shocking tweet that sent stocks and bond yields plunging, there was also some discussion whether Trump should warn China in advance of blasting his decision to the entire world. However, according to Bloomberg, Trump ruled out giving Beijing advance notice of his intent to slap a new 10% tariff on $300 billion in Chinese goods in an Oval Office meeting before he announced the duties.

Citing "several people familiar with the discussion", Bloomberg reports that during the meeting, Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer briefed Trump on their talks in Shanghai this week with their Chinese counterparts. While the White House called the talks “constructive” in a statement issued Wednesday, Trump concluded that the two U.S. officials actually came away with nothing.

Meanwhile, Mnuchin and Lighthizer knew the president was considering a new round of tariffs before they left for Shanghai, three of the people said. Trump has been unhappy about what the U.S. views as Chinese back-tracking on trade talks, and has recently said he believes Beijing may be trying to wait until after the presidential election in 2020 to conclude a deal.

In any case, fast forward to Thursday morning, and the meeting in the Oval Office which was reportedly "tense", and where Mnuchin recommended that the U.S. notify Beijing before Trump, but Trump refused suggesting that the trade hawks are now fully in charge of the situation in the White House. At the same time, acting Chief of Staff Mick Mulvaney talked through the market effects of increasing the China tariffs, Bloomberg sources reported.

Trump hit send on his tweets announcing the new tariffs at 1:26, while Mnuchin, Lighthizer, Mulvaney and others were still in the Oval Office.

* * *

Later in the day, Trump said he was not concerned about the drop in Dow stocks... for a good reason: it is Powell who should be concerned, because as the Fed chair, an escalating trade war is precisely one of the conditions that would prompt the FOMC to cut rates further, something which prompted us to predict earlier today that an escalation in trade war is imminent as Trump now knows precisely how to provoke the Fed into cutting further:

... if an acceleration in the trade war with China is what the Fed will need to cut more, it's pretty clear what that means for the chances of any trade deal between Washington and Beijing, since even Trump now understands that if he keeps escalating trade war with China, Powell will have no choice but to eventually cut to 0% (and lower).

A few hours later we were proven right.