As he readies new tariffs, Fed could be under his thumb by next spring

(Originally published Aug. 29 in “What in the World“) Trump plans to boost tariffs on raw materials and other strategically important imports even further.

The White House plans to jack up taxes on imported aluminum and steel (already at 50%), computer chips and copper, minerals and the trucks to carry them, drugs and their ingredients, airplanes and the parts to make both them and cars.

Why? In the mistaken belief that doing so will somehow revive domestic manufacturing in these sectors before the elevated cost of these essential products strangles the U.S. economy.

No imports are safe from Trump’s push for total autarchy. Trump today eliminated a waiver for imported packages with a value below $800. Now any package being shipped into the U.S. will be subject to tariffs regardless of how small it might be. Unsure how these new tariffs on incoming packages will be collected, several international shipping services have said they will no longer send packages to the U.S.—including Singapore’s SingPost and Germany-based DHL.

Speaking of unsafe: the Federal Reserve’s independence may be under greater threat from Trump that this newsletter previously suggested. It turns out Trump may have a way to exert control over even the five seats on the Fed’s rate-setting committee that are technically beyond his reach.

I’m talking about the five seats of the 12-member Federal Open Market Committee that aren’t filled by the seven members of the Federal Reserve System’s Board of Governors, who are appointed by the president. Trump is now on the verge of gaining control of that board after the resignation earlier this month of Biden-appointed Gov. Adriana Kugler. The Senate Banking Committee will on Sept. 4 begin considering Trump’s appointee to replace her, Stephen Miran, who chairs Trump’s council of economic advisers and is the author of Trump’s economic master plan. If Lisa Cook fails to block his attempt to fire her, he’ll control five of the seven seats, a simple majority.

The five other seats on the FOMC are filled by the president of the Federal Reserve Bank of New York, and four seats that rotate between the members of four regional groups:

• Boston, Philadelphia, and Richmond;
• Cleveland, Ohio and Chicago;
• Atlanta, St. Louis, and Dallas;
• and Minneapolis, Kansas City, and San Francisco.

Those regional Fed boards of directors supposedly have a measure of independence from the Washington-appointed Fed board of governors. The Fed board of governors appoints only three of their nine directors. The other six are elected by the commercial banks in their respective districts.

But the appointment—or re-appointment—of the presidents of those 12 regional Fed banks must be approved every five years by the Fed Board of Governors, as do their budgets. And by some dint of circumstance, all 12 re-approvals come up for renewal next February.

If Trump has managed to install a majority on the Board of Governors by then, he could block the re-appointment of Fed bank presidents who don’t agree to toe his line on monetary policy. It’s a bit of a crap shoot, since each of the five FOMC seats rotates between three of the 12 regional Fed banks. But if Trump can install cronies at each of the banks sharing two of these seats, he’ll have enough in theory to control the FOMC and, with it, arguably the world’s most important interest rates and the price of money in the world’s largest economy.