How trade war and Trump’s rhetoric are further unsettling the economy

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• Judy Woodruff:

  The trade war between the U.S. and China escalated today, sending the financial markets into a tailspin. It all came as President Trump leveled his fiercest criticism yet at the chairman of the Federal Reserve.

  China first announced it is imposing new tariffs on $75 billion worth of American goods. Soon after, the president said he wanted U.S. companies to stop doing business with China, tweeting: "Our great American companies are hereby ordered to immediately start looking for an alternative to China."

  The Dow Jones industrial average plunged today, losing 623 points at the end of the day. It closed at 25628, a drop of more than 2 percent. After the markets closed, the president announced his own retaliation even higher tariffs on more than $550 billion worth of Chinese goods that will kick in during the fall.

  At the same time, Mr. Trump used unprecedented language today to attack Fed Chair Jay Powell for not clearly announcing another interest rate is coming — interest rate cut is coming.

  "My only question," he said in a tweet, "is, who is our bigger enemy, Jay Powell or Chairman Xi?" — a reference to the leader of China.

  Before those tweets, Powell had signaled that the Fed may cut rates in the fall, but also warned of risks from the trade war.

  It has been, as you can tell, a dramatic day.

  Catherine Rampell joins us now. She is a special correspondent for us and she's a columnist at The Washington Post.

  So, Catherine, I hardly know where to begin, but let me start by asking you about the effect of these tariffs announced by China in the morning, and then, at the end of the day, the president, President Trump, announcing higher tariffs on China.

  What does this all mean for the economy?

• Catherine Rampell:

  So, China's retaliatory tariffs, which is what they were, right?

  They were in response to tariffs that Trump himself had announced earlier this month that will go into effect in September and December. China's retaliation, its tit-for-tat retaliation, was widely expected.

  We didn't know exactly what form it would take. So, that, in and of itself, probably won't change the narrative or feelings of confidence, or lack thereof, all that much.

  However, the question is, would things escalates further? And that is what we saw at the end of the day. That's what markets were worried about throughout the day, after Trump himself initially tweeted that some sort of vengeance was in the offing.

  And you can imagine that that, in and of itself, will weigh on confidence, as well as, of course, raise costs for importers, retailers, consumers, manufacturers, and other Americans.

• Judy Woodruff:

  And then you combine that Catherine with the speech today that Jay Powell, the chairman of the Fed, made at this gathering, meeting in Jackson Hole, Wyoming, where he talked about the slowdown that the Fed is expecting, to what extent he's expecting, they're expecting that.

  And he coupled that with a difficulty that he suggested the Fed has in dealing with trade difficulties.

  And I'm just going to quote quickly. He said: "There are, however, no recent precedents to guide any policy response to the current situation. Moreover, while monetary policy is a powerful tool, it can provide a subtle rule book for international trade."

  What does that signal?

• Catherine Rampell:

  What that means is that the Federal Reserve knows that its job is to do its — do right by the economy, right, to fulfill its dual mandate of maximum employment and stable prices.

  But it can't control everything. And, in particular, it can't control risks such as policy decisions that the White House is making regarding escalating trade tensions, not only with China, but with other countries around the world.

  So what Chairman Powell was trying to convey is that people still should be confident in the trajectory of the economy. And while there are risks out there, they are aware of those risks, they will do their best to adjust policy in response to them, but they can't be sort of a Holy Grail kind of backstop.

  And they can't counter every single possible risk, particularly ones that are sort of self-inflicted at this point.

• Judy Woodruff:

  But you layer on top of that President Trump's — I think the most vivid example of his criticism of Chairman Powell was today, when he said, who's the greater enemy of the U.S., Chairman Powell, Jay Powell, or the head of China?

  What are we to make of this? What does this say to Americans, to the business community?

• Catherine Rampell:

  I think it says a few things.

  First of all, this is highly unprecedented on many levels. Right? Chairman Powell was Trump's own pick. Powell, of course, is also at the independent — politically independent Central Bank. And we need to bear in mind that, historically, at least for the last several decades, the White House has had a norm of never commenting on Fed policy at all, let alone sort of cyber-bullying, I guess, members of the Fed or threatening to fire them, as Trump himself has done.

  I think the way that markets might be interpreting all of this is with a bit of nervousness, because, again, the Fed is trying to convey that you can count on us, that whatever risks are out there, we will do our best to counter them.

  But, at the same time, the president is trying to discredit the Fed and, one might argue, sort of scapegoat them. I mean, he's explicitly said that, right? President Trump has said that any weaknesses, any frailties within the economy are the Fed's fault.

  So the Fed is in this very difficult position where they're trying to inspire confidence. They're trying to maintain both their actual political independence and their perceived political independence. And they want make sure that, if they go ahead and further cut rates, as Powell sort of suggested was likely during his speech today, that they are doing it because they think it's in the best interest of the economy, and not because they're caving to political pressure.

• Judy Woodruff:

  And just finally, quickly, Catherine, when the president tweeted today that American companies — he said, I'm ordering American companies to stop doing business in China, does he have the power to do that?

• Catherine Rampell:

  I am not aware of any authority that the president has to do that.

  He can make life more difficult, of course, for companies operating in China. And the American Chamber — or the U.S. Chamber of Commerce, the National Retail Federation and others have basically said, it's impossible, essentially, for us to forego these markets. It's impossible for us to reroute all of our supply chains, especially on short notice.

  And the fact that Trump is raising tariffs, escalating these trade wars, makes all of those decisions even more difficult. But, no, they're not going to voluntarily leave these places, if they haven't already.

• Judy Woodruff:

  All right, Catherine Rampell joining us on this pretty remarkable day in the financial markets and as we look at World Trade.

  Catherine, thank you very much.

• Catherine Rampell:

  Thank you.