US President Donald Trump has threatened to stop trading with countries running a trade deficit with the United States — unless the Federal Reserve cuts interest rates. The major economic threat was delivered Friday (US time), as the Bureau of Labor Statistics reported stronger-than-expected job creation in August, triggering fears of a potential hike later this month among traders, according to a Reuters report.
Fed’s next meeting is scheduled for September 15-16, 2026.
What did Trump say?
Contrary to how Donald Trump consistently blamed rate hikes on former Federal Reserve chair Jerome Powell, he didn’t single out his successor, Kevin Warsh, whom he personally nominated for the job.
As the likelihood of a September hike rose after the US jobs report showed that employers added nearly three times as many jobs in August as economists had expected, Trump wrote in a Truth Social post, “The Fed Board, with its great new leader, must get smart – BE PATRIOTS for a change.”
His message, which emerged shortly after the Bureau of Labor Statistics released its latest figures, added, “High interest rates put the U.S.A. at a very unfair disadvantage, and I won’t allow that to happen!”
Putting forth his idea that a strong country means “a lower interest rate,” he took a swipe at US trading partners, who continue to face higher tariffs contributing to price pressures, especially amid the escalation of the US-Iran conflict and the AI boom.
Reuters reported that both issues have pushed up longer-term US Treasury yields, making government borrowing more expensive. Simultaneously, Trump is also losing political support ahead of the November midterm elections as the affordability crisis for American households has only gotten worse.
“We should have the LOWEST RATE of any country in the World … LOWER THE RATE OR I’LL STOP TRADING WITH COUNTRIES WITH WHICH WE HAVE A DEFICIT,” Trump said online.
Which major countries does the US have deficits with?
In addition to endlessly pushing for lower interest rates, Trump had frequently complained about US deficits with other countries. The list includes more than 90 nations, including America’s top trading partners.
Later that day, Trump told reporters in the Oval Office that he was under “no obligation” to allow trade, as he repeatedly brought up the possibility of banning all trade with Canada. Reiterating his focus on potential trade embargoes, he also took aim at the US trade deficit with Mexico and the European Union.
The US leader told reporters that cutting off trade with them would benefit the country’s economy, as he further threatened to implement an embargo with “one swipe of the pen.” He also insinuated that the International Emergency Economic Powers Act of 1977 gives him, aka the US president, the authority to impose such an embargo in case of an economic emergency.
As highlighted in his social media post, he believes that the trade embargo would be “BETTER THAN TARIFFS.” Back in February, the US Supreme Court already ruled that the aforementioned legislation didn’t authorise the president to impose tariffs.
Just earlier this week, the US Census Bureau and the US Bureau of Economic Analysis announced that the US trade deficit in goods and services was $88.6 billion in July, up $17.4 billion from $71.2 billion in June. Official government data further showed that exports in that month were $310.7 billion, $6.6 billion less than June exports, while imports were $399.3 billion, $10.8 billion more than June imports.
“The July increase in the goods and services deficit reflected an increase in the goods deficit of $17.6 billion to $119.6 billion and an increase in the services surplus of $0.2 billion to $31.0 billion,” the Bureau of Economic Analysis stated.
The country-wise breakdown included in the latest release disclosed that US trade deficits with many trading partners included Mexico ($27.5 billion deficit), Vietnam ($23.3 billion), China ($15.2 billion), and the EU ($8.9 billion), among many others. Even India was listed with a $5 billion deficit.
Experts fear rate hike after August’s jobs data
In an unexpected twist, the US payrolls rose 162,000 in August, well ahead of the consensus for 53,000. Meanwhile, the unemployment rate held steady at 4.1%, as per expectations. Hourly earnings’ growth stood at 3.1%, which was again similar to the Fed’s 2% inflation target.
The monthly report was mostly consistent with what Fed officials characterised as stable labor markets, while markets signalled the possibility of a rate hike for the central bank.
Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management, said, “An upside surprise in payrolls will likely ramp up concerns about a rate hike, but that outcome is in the hands of next week’s inflation numbers,” as quoted by CNBC. “If those come in cooler than expected, the Fed will likely feel comfortable discounting potentially inflationary signals coming out of the labor market.”
“Even the most committed dove would struggle to find anything in the August employment report to justify keeping interest rates unchanged,” Capital Economics analysts wrote, as quoted by Reuters. “The prospect for a rate hike this month still depends much more on the August CPI and PPI data next week, but the strength in the labor market means we’ll only need to see data that are consistent with a moderately above-target-consistent gain in the core PCE deflator to shift our forecast back to a September hike.”
For 5-and-a-half years, inflation has remained above the Fed’s 2% target, Reuters reports. Last week, Kevin Warsh said that the Fed “must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed,” or else they “have work to do.”
Bets on Fed rate hikes went up after Friday’s jobs report, with short-term interest-rate futures prices now indicating about a 62% chance of an increase later this month, according to a Reuters report. Before the jobs data was out, the chances stood at about 55%.