Tussles

US, China officials begin trade talks in Kuala Lumpur to pave way for high-stakes meeting between Trump and Xi.

United States President Donald Trump is set to arrive in Malaysia for the first leg of a five-day trip that spans Japan and South Korea, his first to a region reeling from his aggressive trade tariffs since taking office in January.

Top economic officials from the US and China kick-started talks in Kuala Lumpur on Saturday on the sidelines of the Association of Southeast Asian Nations (ASEAN) summit, in a bid to chart a path forward after Trump threatened new 100 percent tariffs on Chinese goods and Beijing expanded export controls on rare earth magnets and minerals.

Recommended Stories

list of 3 itemsend of list

The talks aim to pave the way for a high-stakes meeting between Trump and Chinese President Xi Jinping on Thursday at an Asia-Pacific Economic Cooperation (APEC) summit in South Korea, which could bring some deals on tariffs, technology controls and Chinese purchases of US soya beans.

Trump will arrive on Sunday morning for his longest trip abroad since returning to the White House in January.

As he left the White House on Friday evening, Trump expressed confidence that he would have a “good meeting” with the Chinese leader. “We have a lot to talk about with President Xi, and he has a lot to talk about with us,” he told reporters.

Trump-Xi meeting

On Thursday, Trump will meet Xi for the first time since his return to office in South Korea’s Busan.

Trump has threatened to raise tariffs on Chinese imports to a total of some 155 percent from November 1 if a deal is not found. That would almost certainly provoke a reaction from Beijing and end a truce that paused tit-for-tat hikes.

Beyond trade, the two leaders are expected to discuss Taiwan, a long-running point of contention, and Russia, a Chinese ally now subject to expanded US sanctions over the war in Ukraine.

Trump also said he will likely raise the issue of releasing Jimmy Lai, the founder of the now-defunct pro-democracy newspaper Apple Daily. Lai is serving a prison sentence in Hong Kong under Beijing-imposed national security laws.

“It’s on my list. I’m going to ask … We’ll see what happens,” Trump told reporters.

Ahead of Trump’s visit for the APEC summit, thousands of South Korean protesters are holding a rally in downtown Seoul, condemning his tariff policies and pressure on South Korea to invest in the US.

ASEAN summit

After skipping ASEAN summits in 2018, 2019 and 2020, Trump, whose disdain for multilateralism is well-documented, will attend the gathering of Southeast Asian nations for the second time.

Several other high-profile leaders from non-ASEAN countries will also be present in Malaysia, including Japan’s new Prime Minister Sanae Takaichi, Brazilian President Luiz Inacio Lula da Silva, and South African President Cyril Ramaphosa.

This year’s ASEAN summit comes as Malaysia and the US have been working to address a deadly border conflict that fully erupted between Thailand and Cambodia in July before a ceasefire calmed hostilities.

On Sunday, Trump is scheduled to meet with Malaysian Prime Minister Anwar Ibrahim, who has been central in guiding and hosting Thai-Cambodian talks,  and they may oversee the signing of a ceasefire deal between Thailand and Cambodia.

The deal would formalise an agreement that ended the worst fighting in years between the two countries, though it falls short of a comprehensive peace deal.

Trump threatened earlier this year to withhold trade deals with the countries if they didn’t stop fighting, and his administration has since been working with Malaysia on an expanded ceasefire.

The president credited Anwar with working to resolve the conflict. “I told the leader of Malaysia, who is a very good man, I think I owe you a trip,” Trump told reporters on board Air Force One.

The US leader on Sunday may also have a significant meeting with Lula, who wants to see the US cut a 40 percent tariff on Brazilian imports. The US administration has justified the tariffs by citing Brazil’s criminal prosecution of former President Jair Bolsonaro, a Trump ally.

Lula on Friday criticised the US campaign of military strikes off the South American coast in the name of fighting drug trafficking and said he planned to raise concerns with Trump in Malaysia. The White House has not yet publicly confirmed whether a meeting is taking place.

President Trump is once again floating the idea of firing Federal Reserve Chair Jerome Powell, ostensibly in objection to excessively high interest rates. But this debate is not about monetary policy. It’s a power play aimed at subordinating America’s central bank to the fiscal needs of the executive branch and Congress. In other words, we have a textbook case of “fiscal dominance” on our hands — and that always ends poorly.

I’m no cheerleader for Powell. During the COVID-19 pandemic, he enthusiastically backed every stimulus package, regardless of size or purpose, as if these involved no trade-offs. Where were the calls for “Fed independence” then? And where were the calls for fiscal restraint after the emergency was over?

Powell failed to anticipate the worst inflation in four decades and repeated for far too long the absurd claim that it was “transitory” even as mounting evidence showed otherwise. He blamed supply-side disruptions long after ports had reopened and goods were moving.

And as inflation was taking a stubborn hold, Powell delayed raising interest rates — possibly to shield the Biden administration from the fiscal fallout of the debt it was piling on — well past the point when monetary tightening was needed.

If this weren’t the world of government, where failure can be rewarded — and if there had been a more obvious alternative — Powell wouldn’t have been invited back for another term. But he was. And so Trump’s pressure campaign to prematurely end Powell’s tenure is dangerous.

I get why with budget deficits exploding and debt-service costs surging, the president wants lower interest rates. That would make the cost of his own fiscal agenda appear more tolerable. Trump likely believes he’s justified because he believes that his tax cuts and deregulation are about to spur huge economic growth.

To be sure, some growth will result, though the effects of deregulation will take a while to arrive. But gains could be swamped by the negative consequences of Trump’s tariffs and erratic tariff threats. No matter what, the new growth won’t lead to enough new tax revenue to escape the need for the government to borrow more. And the more the government borrows, the more intense the pressure on interest rates.

One thing is for sure: The pressure Trump and his people are exerting on the Fed is a push for fiscal dominance. The executive branch wants to use the central bank as a tool to accommodate the government’s frenzy of reckless borrowing. Such political control of a central bank is a hallmark of failed monetary systems in weak institutional settings. History shows where that always leads: to inflation, economic stagnation and financial instability.

So far, Powell is resisting cutting rates, hence the barrage of insults and threat of firing. But now is not the right time to play with fire. Bond yields surged last year as investors reckoned with the scale of U.S. borrowing. They crossed the 5% threshold again recently. Moody’s even stripped the government of its prized AAA credit rating. Lower interest rates from the Fed — especially if seen as the result of raw political pressure — could further diminish the allure of U.S. Treasuries.

While the Fed can temporally influence interest rates, especially in the short run, it cannot override long-term fears of inflation, economic sluggishness and political manipulation of monetary policy driven by unsustainable fiscal policy. That’s where confidence matters, and confidence is eroding.

This is why markets are demanding a premium for funds loaned to a government that is now $36 trillion in debt and shows no intention of slowing down. But it could get worse. If the average interest rate on U.S. debt climbs from 3.3% to 5%, interest payments alone could soar from $900 billion to $2 trillion annually. That would make debt service by far the single largest item in the federal budget — more than Medicare, Social Security, the military or any other program readers care about. And because much of this debt rolls over quickly, higher rates hit fast.

At the end of the day, the bigger problem isn’t Powell’s monetary policy. It’s the federal government’s spending addiction. Trump’s call to replace Powell with someone who will cut rates ignores the real math. Lower short-term interest rates will do only so much if looser monetary policy is perceived as a means of masking reckless budget deficits. That would make higher inflation a certainty, not merely a possibility. It might not arrive before the next election, but it will inevitably arrive.

There is still time to avoid this cliff. Trump is right to worry about surging debt costs, but he’s targeting a symptom. The solution isn’t to fire Powell — it’s to cure the underlying disease, which is excessive government spending.

Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University. This article was produced in collaboration with Creators Syndicate.

1 of 2 | Sen. Rand Paul, R-KY, speaks during a Senate Health, Education, Labor and Pensions Committee hearing at the U.S. Capitol in Washington, D.C., on March 6. Paul opposes a provision in President Donald Trump’s legislative agenda bill that would raise the debt ceiling and has expressed concerns over the bills impact on the national debt. File Photo by Bonnie Cash/UPI | License Photo

June 2 (UPI) — Senate Republicans seek to make President Donald Trump‘s 2017 tax cuts permanent while Democrats push for a ruling from the Senate Parliamentarian as the chamber weigh’s Trump’s legislative agenda bill.

The Senate returned Monday to Capitol Hill after its Memorial Day recess with the sweeping agenda bill as its top priority. As it mulls changes to the bill, Republicans hope to extend the 2017 Tax Cuts and Jobs Act without an end date while not counting its financial impact toward the national debt.

To stop the Republican plan from coming to fruition, Democrats want the Parliamentarian of the United States, a nonpartisan body that interprets the rules of the Senate’s process, to weigh in.

Democrats argued that extending the 2017 tax cuts permanently would violate the Senate’s Byrd Rule, a rule that limits what can be considered in a budget reconciliation bill. This is significant because a budget reconciliation bill can be passed with a simple majority, or 51 votes, rather than the 60-vote threshold which is subject to filibuster rules.

Republicans have a 53-47 majority in the Senate.

The Byrd Rule prohibits any provisions deemed extraneous from being included in a budget reconciliation bill. Among the characteristics that meet the criteria of an “extraneous” provision is a provision that increases the federal deficit beyond the budget window, which is typically 10 years.

Democrats say a permanent extension of the 2017 tax cuts would do just that.

Democrats also say going around the Parliamentarian would undermine the Senate’s filibuster rules, alleging that Republicans already did this when they voted to overturn California’s electric vehicle mandate in May.

Senate Republicans invoked the Congressional Review Act to overturn the electric vehicle mandate without going through the Parliamentarian.

Senate Majority Leader John Thune, R-S.D., called on a series of votes to clarify whether the mandate was a rule that was being violated and thus able to be overturned under the Congressional Review Act.

Senate Republicans have set a goal to pass the legislative agenda bill by July 4. The 1,116-page bill passed the House before the break and needs Senate approval to advance to the president’s desk.

Some Republicans also have expressed their support for making changes to Trump’s legislative agenda bill. Sen. Rand Paul, R-Ky., has shared concerns about how it will add to the national debt if it is passed as is.

“If I vote for the $5 trillion debt, who’s left in Washington that cares about the debt?” Paul said in an interview on CBS News’ Face the Nation on Sunday. “The GOP will own the debt once they vote for this.”

Paul opposes a provision in the bill that would raise the debt ceiling.

Changes to Medicaid are also a source of concern for some Republican Senators.

“I’ve said that if there are deep cuts in Medicaid that would endanger healthcare for low-income families, for disabled children, for other vulnerable populations, and for our rural hospitals, I’m simply not going to support that,” Sen. Susan Collins, R-Maine, said last week when meeting with constituents in Clinton, Maine, according to Maine Public Radio.