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Tariff fog deepens, Fed independence in spotlight as Trump-Powell rift widens
As the US-China trade outlook grows murkier, tensions are now spilling into domestic institutions, with President Trump openly seeking to remove Fed Chair Jerome Powell—placing the Federal Reserve’s independence squarely under the microscope.
Trade negotiations between the U.S. and China remain stalled, as marginal escalations add to investor uncertainty.
U.S. proposal to charge port fees on Chinese container ships and new AI chip curbs from Nvidia have pressured risk sentiment.
A growing rift between President Trump and Fed Chair Powell is raising alarms about institutional stability and monetary policy credibility.
U.S.-China trade deadlock worsens with new flashpoints
The past week failed to deliver any real progress toward U.S.-China trade negotiations. If anything, tensions have worsened at the margin. Washington’s latest proposal to impose port fees on Chinese-made container ships, combined with restrictions on Nvidia’s AI chips designed specifically for the China market, signaled another layer of strategic decoupling.
These moves triggered a pullback in risk appetite and reinforced the notion that a restart of talks remains a distant prospect. While Beijing has reportedly outlined preliminary conditions for dialogue, officials on both sides have offered conflicting interpretations—particularly following meetings involving Japan and the U.S., underscoring the lack of alignment even among U.S. allies.
Trump vs. Powell: Institutional cracks emerge
The spotlight, however, has shifted beyond tariffs to the independence of U.S. monetary policy. Fed Chair Jerome Powell maintained a relatively hawkish tone last week, warning that tariff-induced price shocks could risk fueling long-term inflation if not addressed decisively.
This contrasted with the more dovish messaging from Fed Governor Christopher Waller, who emphasized the downside risks to growth stemming from temporary tariff-related cost increases. The internal divergence at the Fed, while healthy in normal times, became politically charged after Trump’s public rebuke of Powell.
President Trump’s frustration reportedly reached the point of instructing legal advisors to explore removing Powell before his term ends in May 2026. While the president lacks clear authority to unilaterally fire the Fed Chair, the attempt itself has unsettled investors, raising concerns about U.S. institutional integrity.
Markets respond to perceived politicization
Markets have taken notice. The U.S. dollar weakened, gold hit new all time high, and long-dated Treasuries saw buying interest—reflecting fears of a politicized Federal Reserve. Any indication that Powell’s role may be forcefully cut short would have serious consequences for market credibility and the dollar’s reserve status.
Building trust in a central bank takes years. Losing it can happen overnight.
