After setbacks in the trade war, has Trump's "blame-shifting" plan already been launched early?

Original Title: Trump’s ‘art of the retreat’ may signal he’s setting Powell up to take the fall for economic turmoil

Original Author: Eleanor Pringle

Source of the original text:

Compiled by: Daisy, Mars Finance

Trump's "Art of the Deal" may suggest that he is making Powell a scapegoat for economic turmoil.

After failing to reach any major trade agreements, confidence in Trump's tariff strategy may be waning, leading to speculation that the government is shifting from bold negotiations to tactical retreats. Analysts point out that Trump's recent softening of his stance towards Federal Reserve Chairman Powell—who he had been criticizing for several months—may not only be aimed at soothing the markets but also at preemptively arranging a scapegoat for potential future economic crises.

A few weeks ago, the White House claimed that the media and analysts failed to grasp the "art of the deal" in Trump's tariff policy. Now, after the agreements have all fallen through, Wall Street speculates that President Trump is more focused on the "art of retreat." Paul Donovan, chief economist at UBS, pointed out in a report obtained by Fortune that this strategy is reflected in two aspects.

"President Trump showcased the art of retreat. He stated that he has 'no intention' of firing Fed Chair Powell," Donovan wrote, "Trump also indicated that he would be 'very friendly' in any trade negotiations with China, which raises hopes that the tax burden on American consumers may be alleviated."

However, the Federal Reserve Chairman, who had been criticized by Trump for months, suddenly received a "pardon," leading some analysts to suspect that this move was not only to calm the market but also to ensure that the White House has a scapegoat.

Macquarie strategists Thierry Wizman and Gareth Berry wrote in a report obtained by Fortune: "Regarding Powell, we never thought he would be 'fired'. Not only would the legality of a dismissal face court challenges, but earlier pressure from the market and even rating agencies would be enough to halt the political process of 'firing'."

Trump's change in attitude may be due to the realization that the threat lacks legal basis, but the Macquarie team offers a different perspective: "The best reason for Trump not to replace Powell is that he needs Powell as a 'scapegoat' — to take responsibility for a potential economic slowdown. In fact, if the Federal Reserve aggressively cuts interest rates, Trump will find it difficult to look for excuses for an economic recession other than his own policies."

In an environment where the tariff policy at the White House may trigger inflation, the possibility of a significant interest rate cut is continuing to decrease. Deutsche Bank pointed out that the analysts' estimated probability of a rate cut in June has dropped from 78% on Monday to 57% on Wednesday.

Trump's attacks on Powell so far have laid the groundwork for the White House to shift blame amid an economic slowdown. The president has dubbed Powell "Mr. Delay," accusing the "notable loser" of failing to stimulate economic growth through interest rate cuts.

Major misjudgment?

Macquarie strategists believe that Trump's reversal on his most radical claims indicates that the White House's tough foreign policy has not achieved the expected results. Although Trump claims that many countries are lining up to sign agreements, no substantial agreements have emerged. In fact, Treasury Secretary Scott Basset has started to promote a "first mover advantage," attempting to push at least one foreign government to reach an agreement.

Countries like Japan, which were previously identified as those likely to sign quickly, have expressed that they are not in a hurry to take action. After China warned that any country opposing its agenda would face consequences, nations may become more cautious. This is clearly not the efficient negotiation pace of the "90 agreements in 90 days" promised by the White House.

To break the deadlock, Trump may be applying pressure. He told reporters at the White House yesterday: "Ultimately, we will reach a great deal. But if an agreement is not reached with a certain company or country, we will set tariffs - specific numbers will be determined in the next two to three weeks."

Weizmann and Berry pointed out: "Besant's comments on China... indicate that the government acknowledges a significant misjudgment. If this means that Trump is marginalizing ideological officials like Peter Navarro in favor of pragmatists like Scott Besant, a decoupling between China and the U.S. may still occur, but the pace will slow down. The prospect of mending relations with allies such as the EU, Japan, and India is also emerging—after all, if one can be friendly to China, one can be friendly to anyone."

Jim Reid, the head of macro research at Deutsche Bank, stated that China's reduction of tariffs means "foreign policy will enter a more predictable trajectory," and this expectation will boost the market. "In fact, we are returning to Trump's campaign promises: a 10% universal benchmark tariff and a 60% tariff on China, although the 90-day grace period for retaliatory tariffs has only passed two weeks ago," Reid added.