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    US presidential candidate Donald Trump leaves after a joint press conference with Mexican President Enrique Pena Nieto (out of frame) in Mexico City on August 31, 2016.

    Trump’s Mexico Tariff Threat ‘Desperate’ Attempt to Lower Federal Interest Rates - Professor

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    US President Donald Trump’s global trade war is a desperate attempt to win the 2020 election by lowering federal interest rates, Richard Wolff, a professor of economics emeritus at the University of Massachusetts Amherst and founder of the organization Democracy at Work, told Sputnik Thursday.

    Last week, Trump threatened to impose a 5% import tax on all Mexican goods starting June 10 in an effort to stop the flow of undocumented migrants coming across the US-Mexico border. The US president also threatened to increase the duty by 5% every month until it reaches 25%.

    ​In response, Mexican representatives have met with senior Trump administration officials at the White House for two days in a row in an attempt to convince Washington to forgo its tariff plan. However, the meetings between high-level US and Mexican officials on immigration and trade have yet to result in a deal, NBC News reported, citing a senior administration official. 

    "While I still believe that this is mostly political theater designed to get Trump reelected by having him position himself as the great protector of some imaginary onslaught of foreign people… I am now persuaded that while it is still that, the effects of it are so bad and promise to be so long-lasting that the other countries, which include China and Mexico, are now deciding that this may in fact last a long time," Wolff told Loud & Clear hosts John Kiriakou and Brian Becker.

    On Thursday, Mexico reportedly pledged to deploy up to 6,000 National Guard troops to the country's border with Guatemala in a bid to avoid US tariffs on Mexican goods. According to the US Chamber of Commerce, the Trump administration's tariffs against Mexico would hit Texas the hardest, followed by Michigan, California, Illinois and Ohio. If raised to 25%, the tariff hikes would threaten $26.75 billion in imports to Texas alone.  

    Meanwhile, Trump also announced Thursday that he is considering raising tariffs on at least another $300 billion worth of Chinese goods following the G20 summit in Japan on June 28 and 29, which will be the first time Trump and Chinese President Xi Jinping have met since the last G20 summit last year in Buenos Aires, Argentina.

    The latest round of the US-Chinese trade talks ended in mid-May without an agreement, with the US increasing duties from 10% to 25% on Chinese imports worth about $200 billion. Beijing retaliated by hiking tariffs on $60 billion worth of US imports starting June 1.

    "It's beginning to cost their [Mexico, China] economies so they are going to start pushing back, which will force Trump, given the theater he is running, to accelerate and intensify what he is doing, which is what you can see. This may last a good bit longer and therefore do a greater degree of damage. Trump tried very hard a few months ago to get the Federal Reserve to lower interest rates. If you lower interest rates, it's cheaper for people to borrow money and to spend that money, and he wanted that to boost the economy. The Federal Reserve… told him to go take a hike. His answer: crash the economy a little, force the interest rates to be lowered that way and get… reelected… even at the price of long-term damage to both American industry and the industries of the rest of the world," Wolff explained.

    The Federal Reserve System is the US central banking system established in 1913. The purpose of the Federal Reserve, according to its website, is to "conduct the nation's monetary policy to promote maximum employment, stable prices and moderate long-term interest rates in the US economy." The Federal Reserve typically reduces interest rates to boost economic growth, because lower financing cost stimulates borrowing and investing. However, when federal rates are too low, the general price of goods and services in the economy can increase, a phenomenon known as inflation. 

    "[Trump] made it explicit to say that he is imposing tariffs because he has a political objective of blocking immigrants and refugees. We [the US] are members of the World Trade Organization, which explicitly prohibits doing that," Wolff added. "He is desperate. He has to win an election… he needs a booming economy."

    "If there is a recession, which the majority of people believe there will be in 2020, his election is done," Wolff continued.

    According to a report by the New York Times, citing a Bain consulting firm survey of more than 200 corporate executives, the trade war between the US and China is "accelerating a corporate trend of shifting supply chains away from China." The questionnaire found that 42% of those surveyed said they plan to source materials from other countries instead of China, while 25% said that they are planning to redirect investments out of China. 

    "Many companies were initially reluctant to abandon long-standing supplier relationships over a trade dispute that could be over in months, choosing instead to absorb the tariffs or find ways to share the costs with suppliers and customers. Now some are re-evaluating those decisions," the Times notes.

    However, Wolff told Sputnik that he doesn't expect supply chains to be shifted away from China.

    "To change a supply chain is a very costly, difficult and risky business. Very few companies that have taken the time and the trouble over the years to establish the supply chains they rely on are going to reorganize them, only to discover that Trump has once again has changed his mind. And then they will have to spend a fortune of money and have to go back and reverse. The greatest damage being done by Trump, he would like us to believe, is to China. The greatest damage is being done to American companies, because what Trump has taught the rest of the world is that you cannot rely on American companies," Wolff explained.

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    US-China trade war, trade war, tariffs, Mexico, United States
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