Donald Trump's assault on the dollar has U.S. Federal Reserve officials tearing up a carefully-prepared agenda for this weekend's financial retreat in the Wyoming wilderness.
Asia's central bankers had better take care that their own plans are not shredded along the way.
The annual Jackson Hole gathering of global central bankers is so often overtaken by crisis. Five years ago, emerging markets were quaking at the same moment officials checked-in at the Jackson Lake Lodge. In 2008, in the ballroom, they brainstormed about credit market chaos that two weeks later would topple Lehman Brothers.
In 1997, it was raucous debate about contagion from the Asian crisis, and in 1998, fallout from Russia's default 12 days earlier.
Like clockwork, Turkey's meltdown adds urgency to this year's discussions. The real agenda wrecker, though, will be Trump's ploy to weaken the dollar, one that pits the U.S. president against his hand-picked Fed Chairman Jerome Powell.
After two-plus years of complaining the strong dollar is "killing us," Trump appears ready to talk it down, a strategy that could ruin the rest of Asia's year. Traders are connecting dots between recent Trump moves and long-held view that China is "raping" American workers. As Trump told Reuters on Aug. 20: "I think China's manipulating their currency, absolutely," adding that "I think the euro is being manipulated also."
At the same time, Trump ramped up his campaign against Powell, who he thought would be an easy-money enthusiast. "I'm not thrilled with his raising of interest rates, no." Rather, Trump argued, "I should be given some help by the Fed. The other countries are accommodated."
By "other countries," Trump means China and, presumably, Japan, where monetary authorities have their feet on the easy money accelerator. Let's add the Fed to the list of institutions Trump doesn't understand.
In recent weeks, Powell dropped hints he might throttle back on tightening amid tame inflation. Well, scratch that. If Powell were now to signal such an about-face, markets would assume the Fed's independence was compromised. Going after Powell could be a "red line" for Trump's own credibility in markets, says analyst Marc Chandler of Brown Brothers Harriman.
What Trump also does not get is the very valid reasons for the dollar to rise. The Fed's two interest rate hikes since Powell took the reins in February is one reason. Another: with 4.1% growth and 3.9% unemployment, the world's biggest economy is enjoying a rare late-cycle growth burst. Some of it reflects the $1.5 trillion tax cut Trump's Republican Party rammed through Congress in December.
Europe, by contrast, is fretting the return of turmoil, with debt-laden Italy at the center. The European Central Bank is still at zero, compared with the Fed's 1.75% to 2% target. Bank of Japan rates are even lower, as it corners markets for government bonds and exchange-traded equity funds. China's yuan is sliding as capital finds ways to escape an unbalanced and bubble-plagued economy. The People's Bank of China is loosening policy, too.
Beijing, Seoul and Tokyo have been dreading the arrival of a "Trump put" - a presidential bet on a weak dollar. Over the last 15 years, markets grew accustomed to Fed leaders Alan Greenspan and Ben Bernanke stepping in to tame unruly markets. Now Trump is floating his own doctrine, one establishing a ceiling for the dollar.
Trump's escalating trade war is proving challenge enough for Chinese President Xi Jinping. Tariffs on steel, aluminum and 25% levies on $50 billion of mainland goods are a frontal assault on the rapid gross domestic product on which Xi's legitimacy rests. Xi, too, is devising contingency plans should Trump make good on threats to target as much as $500 billion of goods and slap a 25% tax on car imports.
The White House's dollar-depreciation gambit raises the stakes. A rising yuan would further imperil the all-important export engine. It would increase pressure on China Inc., risking major debt defaults. It would have Beijing shelving reforms to reduce runaway debt and credit, exacerbating Beijing's imbalances.
Spare a thought, too, for Japanese Prime Minister Shinzo Abe, ostensibly Trump's closest ally. This was supposed to be the year Japan's five-years-long reflation scheme gained traction. A 2.8% jump in real wages in June from a year earlier, the biggest increase since 1997, fits with that optimistic view. But all bets may be off as Trump targets China, Japan's main trading partner, and the auto sector. Now, add in a potentially stronger yen savaging exporters.
The BOJ could always signal its stands ready to keep the liquidity spigot open. That might just provoke Trump to target Tokyo. Last year, Trump surprised Abe's team by listing Japan among governments guilty of "global freeloading" via exchange rates.
"You look at what China's doing, you look at what Japan has done over the years - they play the money market, they play the devaluation market and we sit there like a bunch of dummies," Trump complained in February 2017. He did so around the same time he hit Toyota Motor on Twitter, threatening a "big border tax" over plans for a $1 billion factory in Mexico.
The growth calculus also changes for South Korea should the won surge. This year's 4.8% drop versus the dollar is key to maintaining the 2.9% growth Korea posted in the second quarter. Already, though, the 6.2% rise in exports in July from a year earlier was half the 13.5% pace in May. Fresh headwinds make it less likely giant conglomerates will fatten paychecks or help President Moon Jae-in reduce 9.2% youth unemployment.
If threats to competitiveness were not bad enough, Asian governments also must brace for increased market volatility. Trump, after all, is not just brawling with foreign governments, but his own central bank.
"Even if Powell is no pushover," says Axel Merk, president of Merk Investments, "it may be costly nonetheless as Fed policy may have gotten more expensive: more action -- higher rates -- may be necessary because of the political interference than otherwise would be warranted. And there you have it: a Trump put with unintended consequences."
Or perhaps it is entirely intended, as Trump does his worst to upend the status quo in global economic circles. Asia's export-reliant economies are on the front line of Trump making currency wars great again. That would be anything but great for Asian growth in the months ahead.
William Pesek is an award-winning Tokyo-based journalist and author of "Japanization: What the World Can Learn from Japan's Lost Decades." He was given the 2018 prize for excellence in opinion writing by the Society of Publishers in Asia, for his work for the Nikkei Asian Review.