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.

Bessent has consistently described Trump’s plan for tariffs of 60% on China and 10-20% on other countries as a negotiating tactic. As he told Bloomberg TV in August, and later repeated in many public and private forums: “President Trump speaks like a New York City real estate developer, and that is the opening gambit […] It is a maximalist negotiating position.” The purpose of tariff plans is not just to raise revenues or rebalance trade but to extract negotiating concessions. “Tariffs,” he wrote on the Fox News website straight after the election, “are a useful tool for achieving foreign policy objectives, whether it is getting allies to spend more on their own defence, opening foreign markets to US exports, securing cooperation on ending illegal immigration and interdicting fentanyl trafficking, or deterring military aggression.”

To maximise the effectiveness of any negotiating strategy, Trump would not impose high tariffs immediately. Instead, he would gradually phase them in over a two-year or even three-year period, thereby steadily intensifying economic pressure. “I have spoken to President Trump, spoken to his team, and I think everyone is on board with a kind of forward guidance or phased-in tariff,” Bessent said. “So, you say to President Xi, 60% might be 2.5% a month for 24 months, tell us when you’ve had enough.” In another Bloomberg interview, he suggested a 36-month phase-in. “I think one of the misconceptions is that we would snap into tariffs on day one. It would be phased in, and other countries would be given the opportunity to open their markets.”

The goal of Trump’s trade negotiating strategy could be very ambitious. “We are at a key geopolitical moment. I see the need for a grand economic reordering. Something going back to Bretton Woods or the Treaty of Versailles,” the economist said. “There is a very good chance that we are going to have that over the next four years. I want to be part of this.” The ultimate objective would be to create a new era of international cooperation, involving military and geopolitical partnership, balanced trade and consistency of national policies, to replace neoliberal globalisation.

Bessent has described a “Mar-a-Lago Accord” that would be more complex and far-reaching than the Plaza and Louvre Accords of the Eighties because it would have to embrace China and perhaps other geopolitical rivals of the US which pose potential security risks. This new accord would need to divide the world economy into three groups depending on how closely they are willing to cooperate with US objectives. Bessent proposed that “[W]e should make it very clear that there is a green, a yellow, and a red bucket and we let everyone know where they are. Here’s what we ask of you and you can choose which bucket you want to be in and here’s what you get for being in the bucket.”

One inconsistency in using tariffs as a negotiating strategy is that if the approach works, and other countries concede US demands, tariffs cannot raise extra revenues or protect domestic industries. In Bessent’s view, however, there is no contradiction, as Trump is not really a protectionist. “My general view is that at the end of the day, he’s a free trader. It’s escalate to de-escalate,” he said a few weeks before this month’s election. In fact, he has repeatedly claimed that Trump would prefer to reduce rather than increase tariffs: “Donald Trump views tariffs as a way not as an end to free trade. You know, if you bring down your tariffs, we will bring down ours.”

Bessent’s comments may be very different in spirit from Trump’s campaign threats, not to mention the aggressively protectionist and anti-Chinese diatribes of Robert Lighthizer, Trump’s main trade adviser in his first term. But the Treasury secretary nominee’s comments are actually consistent, in logic if not in tone, with the policy content of Trump’s public pronouncements. What’s more, Lighthizer appears to have been sidelined among Trump’s courtiers. If this is as it seems, then Bessent’s claim that Trump has turned his back on outright protectionism may turn out to be true — at least for the time being.

This is an edited version of an article which originally appeared in the Gavekal newsletter.

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Anatole Kaletsky is co-founder, chairman and chief economist of Gavekal. He previously worked as an economic journalist and commentator.

Kaletsky

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