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November 26, 2024 - 5:40pm
Yesterday, Donald Trump made his most explicit comments to date on his economic plan for his second presidency. On his Truth Social platform he wrote: “On January 20th, as one of my many first Executive Orders, I will sign all necessary documents to charge Mexico and Canada a 25% Tariff on ALL products coming into the United States, and its ridiculous Open Borders.” He also threatened “an additional 10% tariff, above any additional tariffs” on imports from China.
This leaves a challenging task ahead for Trump’s pick for Treasury secretary, hedge fund manager Scott Bessent. During his election campaign — only a few weeks ago — Trump was threatening 60% tariffs against China and 10% to 20% on other countries. Nobody knows for sure what he will try to do by the time of his inauguration in January 20 — and that almost certainly includes Trump himself. But given his first-term record, and considering his proud embrace of spontaneous unpredictability as a core principle of government, the one thing we can say for certain is that no forthcoming “announcements” will be implemented in the manner or timing that Trump’s social media outbursts supposedly decree.
As for Bessent’s appointment, the US dollar may strengthen a bit because of the ensuing confidence effect, but it should give up its post-election gains against the yen, euro and renminbi within the next few days. Further ahead, the Chinese and Japanese currencies should be big gainers from the choice.
By choosing Bessent (who, to declare an interest, has been a longstanding intellectual sparring partner and friend), Trump has done the markets and the world economy a huge favour in at least three ways. First, Bessent is eminently well-qualified and experienced. Second, he has spoken at length in the past few months about how he interprets the Trump economic strategy in many public and semi-public forums. This makes him a more useful guide to the future than other Treasury contenders. Third, and most importantly, his views and comments on economic policy, while often unconventional or controversial, have always been pragmatic, self-critical and constructive, not reckless, dogmatic and belligerent. It is likely that he will be a moderating influence in the MAGA team.
While Trump will make the final decisions on key economic issues, the vast trove of comments that Bessent has made in the past few months about his economic plans presumably means that the President-elect would not have made this appointment unless he broadly agreed with the economist’s interpretations of Trumpian economics. As a result, the choice should encourage investors to reassess several of the “Trump trades” that have dominated market sentiment for most of this year.
It is important to look at what Bessent, a former Trump adviser, has publicly said about trade and tariffs. This is where, at first glance, the economist seems most at odds with the incoming president.
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SubscribeInteresting article. I always used to read Anatole Kaletsky in The Times in the days before it went full New Labour (a state it seems to have hibernated in ever since). Hopefully more articles UnHerd articles to come from him.
Perhaps there is some method amongst the apparent Trump madness (how can you enforce any tariffs within NAFTA ?). The traffic light buckets system where countries/trade blocs get to choose which bucket they want to be in makes some sense. Of course, there’s still an assumption that the Americans can lay down the law here and define the rules. Might still hold – but less strongly than in the past.
As I recall, Kaletsky was usually wrong. And as for Trump being a free trader…really?
Thought tariffs were going to pay for his tax cuts for the Rich whilst helping on-shore jobs for the ‘left behinds’ and ‘little guy’? Hmm, now could be a negotiating stance. or could be just one of the many campaign contradictions closing in on reality.
Seen some thoughts that what China might do is drop prices and seek other markets. For UK/Europe/elsewhere that could help further reduce inflation/cost of living but maybe with other consequences. One of which is what does Trump expect Europe to do in any trade war, esp with NATO leverage? EU will be preparing it’s list of retaliatory measures and Trump weakens NATO and Western alliances and he makes Xi and Putin v happy. Not sure he really wants to do that once he gets beyond rhetoric. So it’s complicated web. And if Xi decides that’s the trigger for a Taiwan blockade the ‘little guy’ everywhere is going to feel it v quickly. Trump then of course gets the credit.
You just wonder, but hope, this guy actually played out a few scenarios here and got the macho knee jerk stuff under control.
It seems like a new method of imposing “sanctions” to strongarm countries into arbitrarily following U.S. rules. Dollar sanctions have failed, giving rise to BRICS, and now this approach will certainly drive the final nail into an isolated U.S. economy. The resulting austerity from severe tariffs will force countries that depend on the U.S. to find other creative options.
America is isolating itself.
Why do people always try to explain away the things Trump says? Trump says what he says to stake out a negotiating position that is favorable to his end game. What he says is not his end game itself. He says what he needs to say to end up where he wants to end up. Did not the previous 4 years of his presidency teach people anything? You call it bluster. He calls it “The Art of the Deal.” While the press and liberals are focusing on and reacting to what he says, he gets done what needs to get done behind the scenes.
Good luck trying to reduce the trade deficits which has benefitted US consumers with inexpensive goods for several decades. Tariffs are a tax on imported goods, which will raise prices and inflation. Other countries will not sit by idly, they will also raise tariffs and protect their industries. This is a dangerous game that could lead to a global recession, including the US , especially if Trump slashes government spending as well. Whether they like it or not, the US is tied to the global trading system, and companies are not stupid, they won’t turn on a dime to build factories in the US where costs are high and the labor force is not even available, they will hold back, seek alternatives and probably just try to ride out the Trump chaos.
I think Trump believes we’re back in the 1980s, when the U.S. had the power to dictate how other countries should conduct their business. But he’s no longer in a position to make the kinds of calls he’s making—there’s a different reality now.
More importantly, one potential unintended consequence of his actions could be a complete cultural shift: consumers might stop buying the extravagant things they’re used to, leading many businesses to close. Once people experience the relief of “saving” and feel the stress of constant spending disappear, it’s hard to return to the old spending habits. And spending is how the U.S. economy has traditionally controlled its market—by providing for a hungry population of 350 million.
Now, however, China and its allies are focusing on emerging markets that the U.S. has either overlooked or dismissed, changing the rules of the game. That said, I’m cheering for a saving culture, not a spending culture! Maybe, just maybe, the Earth could breathe again. A fantasy, I know—but a hopeful one!
Loosely translated, what this means is what I’ve been saying for a while now. Economics and politics are no longer separate. Economic policies will take political considerations into account, and vice versa. There will be no more (relatively) benevolent empire sustaining, protecting, and policing a global trade system and asking little if anything in return. There will be no more attempts to get the nations of the world on the same page and following the same rules. There will be an expectation of quid pro quo. If somebody is benefiting from selling to the US, the US had better see some benefits going back the opposite way. Nebulous promises of efficiency gains and lower prices are no longer enough to assuage angry voters. The US will extract economic concessions for military protection. The US will also extract political concessions for economic cooperation. This is going to be a rough time for a lot of folks.
Will there be push back? Certainly. Will America’s reputation suffer? Sure, but it wasn’t in great shape to start with. There are alternatives, but they aren’t any better. We know who they are and they’ve been conducting economic warfare for better than a decade and there’s no sign it will stop. Countries will have to pick a side and live with it. The allies that are most crucial to the critical interests of the US and provide the most economic benefit won’t be asked to do much at all. Japan, South Korea, Vietnam, Australia, and Taiwan all have political disputes with the other big fish in this scenario. It won’t be a hard sell to get them on board with the notion that economic policy should align with political policy. Some countries will probably maintain a high level of neutrality because they have the economic power whether that’s a result of size, resources, or some other factor. Brazil, India, Saudi Arabia, etc. fit into this category. They’ll be handled on a case by case basis. Hostile countries like Iran, China, Russia, North Korea, etc. will be treated as such. Barring the death or overthrow of Xi Jinping, the great decoupling will proceed. It won’t happen instantly or quickly, but it will happen as the US and China play t*t for tat in terms of economic policies. This is what Bessent means when he speaks of colored buckets.
If Trump 2.0 is anything like Trump 1.0, it will be very difficult to reverse the changes he makes to trade and economic policy without running afoul of voters. If you take an objective look at the Biden administration, its policies and the legislation passed, it looks more like the first Trump administration than the second Obama administration, for good reason. Trump may be personally distasteful, but many of his policies are broadly popular. Any Democrat who comes along in the future will have to pay a heavy political price to try and reverse them. Biden didn’t reverse the China tariffs because the Republicans, and even some Democrats, would have pounced on the opportunity to score political points at his expense. He passed legislation to support American industry because that’s what the people demanded. If he’d tried to go back to the policies of 2015, he (or whoever succeeded him) would have lost by an even greater margin. American voters, you see, are tired of free riders on the American system, tired of countries like China gaming the system to their advantage, and tired of being hated by much of the world for the trouble. Trump has free reign to be the bad guy on the global stage and most voters will either cheer him for it or not care very much as long as they benefit. The USA has an ugly side and some countries are going to get to see it. It’s not racist or xenophobic. It’s not condescending or smug. It’s pragmatic, hard, and ruthlessly self-interested. At the moment, it’s taken the form of real estate developer playing hardball and using whatever leverage he has whether fair or foul to extract the most profits for himself. People who hated the “American Empire” before are in for a shock, because they ain’t seen nothin yet.