Treasury Secretary Scott Bessent on Tariffs, Bonds and the Next Fed Chair

Summary

In a revealing interview on Bloomberg Podcasts, Treasury Secretary Scott Bessent delved into various aspects of U.S. economic policy, ranging from tariffs and trade negotiations to stability in the bond market. Bessent articulated the Trump administration's focused approach towards Latin American trade and highlighted the strategic importance of aligning with allies against China's economic influence. He also expounded on the mechanisms of U.S. monetary policy, the dynamics of the global reserve currency, and the ongoing collaboration with the Fed. His insights offered a comprehensive view of the challenges and opportunities facing the U.S. economy in a rapidly changing global landscape.

Highlights

• Bessent discussed the U.S. trade strategy's shift towards Latin America, emphasizing Argentina's role in negotiations 🇦🇷.
• The interview detailed the strategic response to China’s economic tactics in other continents 🌏.
• Secretary Bessent outlined a robust trade negotiation framework with a 90-day timeline ⌛.
• He reassured confidence in the U.S. bond market amidst market volatility 📉.
• Bessent shared insights on future Fed leadership and the importance of maintaining economic stability 🌟.

Key Takeaways

• Treasury Secretary Scott Bessent emphasizes a strong U.S. economic strategy, with focus on tariffs and trade negotiations 💪.
• Argentina is a key focus due to a significant IMF agreement and trade considerations 🤝.
• The administration aims to counterbalance China's influence in Latin America, avoiding pitfalls seen in Africa 🌐.
• Treasury and Fed collaboration remains strong, with weekly discussions on economic stability 📈.
• The U.S. remains a staunch supporter of a strong dollar policy amidst global economic fluctuations 💵.

Overview

In a candid exchange, Secretary Bessent laid out the broad strokes of the U.S. government's economic playbook as it navigates complex international waters. With Argentina in the spotlight following an IMF deal, Bessent articulated a strategic focus on establishing robust trade agreements that counterbalance Chinese influence.

The discussion ventured into the Trump administration’s broader strategic aims, particularly addressing how the U.S. intends to stabilize its economic position in relation to Chinese trade dynamics, which have historically impacted other regions like Africa detrimentally.

Focused on both immediate and long-term economic stability, Bessent highlighted ongoing communication with Federal Reserve Chair Jerome Powell, reaffirming a commitment to a strong dollar and discussing the preparedness for any potential economic disruptions.

Chapters

• 00:00 - 01:00: Introduction and Argentina Context The chapter titled 'Introduction and Argentina Context' discusses the recent $20 billion agreement between the IMF and Argentina. It highlights that this event marks the first visit by a US Treasury secretary to Argentina since Trump's first administration, which was for a G20 meeting. The chapter explores the reasons behind the Trump administration's focus on Argentina, noting that it is part of a series of administrative readjustments.
• 01:00 - 02:00: IMF and World Bank Involvement with Argentina Chapter Title: IMF and World Bank Involvement with Argentina Summary: The chapter discusses Argentina's significant economic adjustments, involving fiscal, monetary, and currency reforms. The International Monetary Fund (IMF) has allocated $20 billion, while the World Bank has committed $12 billion to aid the country. The chapter also highlights the support shown to President Meili and his dedication to these historic economic changes.
• 02:00 - 03:00: Trade Negotiations and Latin America Policy The chapter discusses the ongoing trade negotiations between the United States and Argentina. The focus is on the potential to reduce Argentina's 10% trade tariff to 0%, contingent upon the results of the negotiations. The U.S. approach is to urge countries to present strong cases (referred to as 'bringing their A-game') for tariff reductions, indicating a strategic, case-by-case negotiation process. The outcome remains uncertain as the talks are in preliminary stages.
• 03:00 - 04:00: China Relations and Currency Swap The chapter discusses various challenges in international trade, specifically focusing on China's trade relations. It highlights the issues of tariffs, non-tariff barriers, and currency manipulation as significant hurdles. Additionally, it addresses the role of labor and facility subsidies in trade. The chapter also touches upon the Trump administration's early focus on Latin America, suggesting that the Latin America policy might also align with policy towards China.
• 04:00 - 05:00: Tariff Policies and Global Trade Relations The chapter discusses global trade relations and specifically addresses the nature of China's trade dealings with Africa. It outlines how China has historically engaged in what might be considered exploitative agreements, presented as aid packages, but which often lead to significant debt accumulation for the African countries involved. These agreements frequently include the acquisition of mineral rights and are criticized for their lack of disclosure to other international entities. The narrative offers a critique, comparing these actions to a hypothetical scenario the administration is attempting to avoid.
• 05:00 - 06:00: Addressing Trade Barriers and Negotiation Strategies The chapter explores the topic of addressing trade barriers and negotiation strategies, focusing on the roles played by international organizations. It delves into the concern that certain financial arrangements, like tolling agreements, may impoverish future generations by depleting resources and uses Latin America as an example of regions affected. The discussion continues with a specific focus on China and Argentina's financial interactions, notably a foreign exchange swap involving $18 billion in Chinese RMB, highlighting the complexities of international credit lines and the decision-making process regarding direct financial involvement from countries like the United States.
• 06:00 - 07:00: Impact on Bond Market and U.S. Assets The chapter titled 'Impact on Bond Market and U.S. Assets' discusses the financial strategies of a Peronist government, focusing on a $5 billion drawdown that remains outstanding. It covers the cooperative actions of China, which involved extending a financial agreement in conjunction with an IMF announcement. The discussion includes whether the administration should consider terminating a swap deal with Beijing and suggests that the administration should maintain its current economic policies.
• 07:00 - 08:00: Fed Communication and Treasury's Role The chapter titled 'Fed Communication and Treasury's Role' explores recent developments in foreign exchange flows and tariff policies. It opens with a discussion on the potential for enough foreign exchange inflows to settle debts, followed by a conversation about the shifting roles in tariff negotiations, highlighting a key transition in leadership and policy construction over a 12-day period. The narrative emphasizes the dynamic nature of fiscal roles and communication strategies at the federal level.
• 08:00 - 09:00: Fed Chair Succession Planning Fed Chair Succession Planning: The narrator was previously focusing on tax matters, which are progressing well. Now, their attention has shifted to trade negotiations, as the President has initiated a 90-day pause to accelerate discussions with key trading partners. Recent negotiations included Vietnam and Japan, with South Korea scheduled for talks next week.
• 09:00 - 10:00: Supreme Court Ruling and Fed Independence The chapter discusses the fast-paced developments regarding a process being set up for negotiations. It emphasizes the importance of an orderly procedure where the president will eventually be involved, especially with major trading partners. The current negotiations include dialogues with negotiating teams from Japan and the Spanish Economy minister.
• 10:00 - 11:00: Financial Stability and Contingency Plans The chapter discusses the dynamics of international trade meetings, focusing on a pre-arranged meeting with the Spanish economics minister and trade negotiations with Japan. The narrative highlights the differences between these interactions, stressing that the Spanish meeting was not a negotiation but a preliminary discussion. It also touches upon the stance of the Japanese Prime Minister, who expressed no urgency in reaching a trade compromise. The commentary suggests that parties involved, particularly allies, could benefit from being first movers in trade agreements, implying potential advantages in terms of strategy and negotiation outcomes.
• 11:00 - 12:00: Market Reactions and Policy Implications The chapter discusses the potential for numerous countries to reach agreements in principle on trade deals within 90 days, although the specifics might not be finalized in an actual trade document. The outcome could range from a dozen to over seventy countries making progress, though the exact number will depend on various factors.
• 12:00 - 13:00: Republican Unity and Tax Policy In this chapter titled 'Republican Unity and Tax Policy,' the discussion focuses on the complexity of moving forward with changes in trade policies, particularly emphasizing the difference between handling tariffs and non-tariff trade barriers. The USTR (United States Trade Representative) is highlighted as the body responsible for managing these complexities. While reducing high tariffs might seem straightforward, the real challenge lies in addressing non-tariff barriers, which are considered more difficult and insidious. The chapter underscores the need for thorough data analysis and strategic implementation to navigate these trade policy changes effectively.
• 13:00 - 14:00: Comprehensive Policy View and Conclusion The chapter discusses the challenges and strategies involved in economic policy and negotiation, particularly in the context of President Donald Trump's administration. There is a metaphorical discussion of 'cracking eggs and making an omelet,' suggesting that bold actions need careful consolidation. The speaker emphasizes the importance of confidentiality in negotiations and seems to suggest that the administration's strategies might require time to fully develop and show results.

Treasury Secretary Scott Bessent on Tariffs, Bonds and the Next Fed Chair Transcription

• 00:00 - 00:30 So you've come here at a time when the IMF has just announced this $20 billion agreement with Argentina, but we haven't seen a Treasury secretary come to Argentina since Trump's first administration, and that was for a G20. So why the emphasis from the Trump administration on Argentina? Well, Anne-Marie, a couple of reasons. The reason for being here today is today's a from day. So the administration has done through readjustments, and this marks the beginning of the third one.
• 00:30 - 01:00 So they did a large fiscal adjustment, a large monetary adjustment, and they're doing it or they announced on Friday a large currency adjustment. IMF has allocated 20 billion to them. The World Bank has allocated 12 billion. And I wanted to come here today to show support for President Meili and his commitment to what I think is historic in terms of
• 01:00 - 01:30 bringing Argentina back from the precipice when it comes to the trade negotiations. I'm sure you spoke with President Melaye about the 10% rate that Argentina was hit with. Do you think at some point that can come down to zero? Look, I think we're going to start the negotiations. And just like with everyone else, I'm telling him, bring your A-game. We'll see what you got and we'll go from there. Can any country go to zero? Well, again, we'll see. It is I don't know what's going to happen with the negotiations because
• 01:30 - 02:00 we've got a whole box of things We've got to overcome tariff, non-tariff trade barriers, currency manipulation and subsidies, subsidization of labor and facilities. So there's a big menu there. There's been an early focus on Latin America, writ large from the Trump administration in the first 100 days. Is Latin America policy also, in a sense, China policy for this
• 02:00 - 02:30 administration? Well, I think that might be a good description because what we are trying to keep from happening is what has happened on the African continent, where China has signed a number of these kind of rapacious deals mart as aid, where they are really they take they've taken mineral rights, they've added huge amounts of debt on to these countries balance sheets. It's undisclosed to any of the other
• 02:30 - 03:00 international organizations. They've got tolling arrangements. So they're they're guaranteeing that future generations are going to be the poorer and without resources. And we don't want that to happen any more than it already has in Latin America. China has a foreign exchange swap with Argentina. Would you consider a credit line directly from the United States? That's not under consideration in terms of. So they have an $18 billion credit swap in R and B, Argentina under the previous
• 03:00 - 03:30 Peronist government drew down 5 billion and that will remain outstanding. The Chinese show very good faith effort after the announcement or in conjunction with the IMF announcement. So that is going to be rolled forward for a year. But do you want them to get rid of that swap with Beijing? Well, I think as this administration continues their stay the course of their economic policies, they should
• 03:30 - 04:00 eventually have enough foreign exchange inflows to be able to pay that off. So less than two weeks ago, you and I were talking outside of the White House after what the president called Liberation Day, and you said you weren't part of the negotiations. Now you're leading them. What's changed in these past 12 days? No, no, no. What I said was I didn't construct the actual tariff rate, the tariff rates. I've always been part of the tariff policy.
• 04:00 - 04:30 I had been focusing on tax. Maybe you want to talk about that later. That's going very well. And now with the trade negotiations, I am going to be part of that. And the President has hit a 90 day pause button and we are moving quickly with many of our most important trading partners. So we had Vietnam and last week we had the Japanese in on Wednesday, South Korea next week.
• 04:30 - 05:00 So it's going to move fast. And we. But the important thing for your viewers to know is we're setting up a process and we are going to run that process. It's going to be orderly. And at the end of the day, especially for the most important trading partners, the president's going to be involved. So when it comes to the current negotiations this week, you're also sitting down again with the Spanish negotiating team excuse me, the Japanese negotiating team, and also the Spanish A. Economy minister.
• 05:00 - 05:30 While the Spanish economics minister was just a pre-arranged meeting he and I have never met. So that is not a trade. Sit down. The Japanese meeting is a trade negotiation. The Japanese Prime Minister recently said he's not going to rush to get a compromise in a negotiation. How quickly do you think you can see these deals come to fruition? Well, again, I think there will be advantage to our allies, especially in a first mover advantage. Usually the first person who makes a
• 05:30 - 06:00 deal gets the best deal. So you think will be first. It's their choice. Is there a handful of countries that you expect to have a deal before the 90 days is up? Oh, I think there could be numerous countries and it may not be the actual trade document, but we will have an agreement in principle and be able to move forward from there. So we're talking about a dozen or 70 plus. I think it's going to depend, but we're
• 06:00 - 06:30 going to move with all deliberate speed. And again, it's going to be a process. It's going to be USTR who just has mountains of data that they've been collecting over the years, because in a funny way, the tariffs are the easiest part. So a country with high tariffs, you can just say, okay, this, this, this, this, get rid of it. It's a non-tariff trade barriers that are more insidious, more difficult to
• 06:30 - 07:00 spot. And it's probably going to take a little little longer to exorcise those demons. When you said you weren't part of the rates in that chart that the president held in the Rose Garden. Is he taking a maximalist approach? Neil Dutta recently wrote that President Donald Trump has cracked a lot of eggs, and now Scott Bassett, the Treasury secretary, needs to make an omelet. Is that how you view the situation right now? I view not giving away negotiating secrets on worldwide television. The as the essence of negotiating.
• 07:00 - 07:30 You recently talked about getting deals done quickly with partners to then confront China together. When you're in these negotiations with trading partners, are you looking for them to offer up something to combat Beijing? Well, I think combat is an aggressive word. But, look, I think now that we have the China tariffs in place, that they're going to want to have some protection from Chinese goods flooding their markets, that China's business model is like from that Disney movie where the the brooms are carrying the buckets.
• 07:30 - 08:00 They're not going to stop manufacturing because the U.S. has a tariff wall up. So those goods are going to go somewhere. Where do you think they're going to dump? Well, I think it depends on the good. We have exemptions now, though, for electronics. So we still expect electronics to come into the United States with the smaller tariff rate, the Fed and all 20%. But you were asking, where are they going to dump? I think it will depend on what is the
• 08:00 - 08:30 good, you know, higher value added manufacturing goods likely in Europe, Canada, in the in the G7, and then kind of more of the bubbles and knickknacks in the global south. China's Commerce Ministry came out when the tariff rates were going above 100% and called it, quote, a joke. Has there been negotiations on any level between Beijing and Washington right now? Well, look, the it will come from the top. President Trump, Chairman Xi have a very
• 08:30 - 09:00 good relationship. And I wouldn't say that these are not a joke. I mean, these are big numbers. I think no one thinks are sustainable, wants them to remain here. But it's far from a joke. Well, they just say that the rate is so high, it's become a joke, basically. Does it just stop trade between Washington and Beijing altogether? Do you see a decoupling of these two economies? Well, maybe the trade minister has a different sense of humor. I do, but I don't see anything funny
• 09:00 - 09:30 about it. Do you see a decoupling, though, between Washington and Beijing? There doesn't have to be. There could be. There's a big deal to be done at some point. But look what is different with China. That is different in the history of trade that normally if you go back to the big trade deals or the currency deals in the eighties, the Plaza Accord, the Lulu record, the Reagan auto deals, we were are leading economic competitors
• 09:30 - 10:00 were our military allies. China is both our biggest economic competitor and our biggest military rival. So that's going to require a special kind of formula. Are you teasing out a Mar a Lago accord that we should be paying attention for in the future? I'm not sure what you're talking about, potentially getting all these trading partners together to discuss fair, balanced trade. Well, we're doing that over the next 90 days. Okay, So shifts in tariff policies has
• 10:00 - 10:30 had markets on edge. Even the president recently remarked that the bond market was, quote, queasy. Do you have a sense of who is dumping U.S. assets, who's been dumping U.S. Treasuries? I don't think there's a dumping. And I think we saw in the tech data either today or Friday that actually foreign ownerships picked up. We had to we had three big auctions last week. And on the longer an auction, ten tenure, 30 year, we saw increased foreign competition.
• 10:30 - 11:00 So I actually think this is one of those occasional VAR shocks that you get in the trading community. I think a lot of people got very leveraged maybe out over their skis. And then you combine that with some real money selling and you get these moves. So you don't think it's sovereigns, potentially it's hedge funds unwinding? I have no evidence that it's sovereigns. And look, Anne-Marie, the not you, but the nature of journalism is to create a
• 11:00 - 11:30 headline that the ten days ago when the ten year yields hit three nine, he said. Well, Secretary Bessant got what he wanted. He got ten year yields down, but it's the wrong reason. Now, I forget what they had on Friday, maybe 440 something. We saw a 50 basis move last week and ten year yield at the same time that the dollar was weakening nearly 3%. How do you simultaneously look at that
• 11:30 - 12:00 situation? It feels like investors are dumping U.S. assets. Well, look, I've learned that not to look at what happens there over a week. You know, I, for better or worse, have lived through a lot of these things. And in trading in one's personal trading history is the scar tissue that sticks with you the most. And I can tell you exactly where I was standing in 1998 when the long term capital, the debacle happened that had nothing to do with anything other than a
• 12:00 - 12:30 bunch of geniuses up in Greenwich who had too much leverage. So you're not concerned at this moment about the US dollar or the U.S. Treasury losing safe haven asset? No. Look, I still own global reserve currency. We are still a global reserve currency that the we have a strong dollar policy. The dollar can go up and down. If you go and look back at President Trump's first term, I don't remember the exact number, but the dollar in 2017
• 12:30 - 13:00 went down. I can't remember seven, eight, 9%. And then once the tax bill was done, took off, took off for for the remainder of his term. Have you spoken to the Fed at all about contingency plans, though, if financial stability risks flare up? Chair Powell and I have breakfast every week and we discuss a wide range of things. And, you know, our staffs are always in
• 13:00 - 13:30 contact. We have a market forum. They have a markets room. But, you know, and specifically, did we discuss some kind of a break the glass? I think we're a long way from that. So when was the last time you guys spoke? We had breakfast last week. We had breakfast last week. And it was an away game. I was over the Fed and no concern so far from the Fed chair and what he saw in the Treasury market. I think we would have heard the from the Fed chair. I think we heard from Governor Collins of Boston on Friday.
• 13:30 - 14:00 We heard from Governor Weller today on his thoughts on what tariffs mean. So seems like business as usual when it comes to the Fed chair. His term is up May 20, 26. So we're almost 12 months out from that. When are you going to start to think about having discussions with the president about who should lead the Fed? Well, we think about it all the time. I think when are we going to start interviewing candidates? And that will be sometime in the fall.
• 14:00 - 14:30 In the fall. So about six months lead time. The US Supreme Court recently came out with a ruling that the executive branch, the president for now could oust top officials at independent agencies, and that has some individuals in the market a little bit concerned about what this could mean for the independence of the Fed, which is really a cherished pillar of wanting to invest in America. Do you have any concern about potentially President Trump ousting Fed Chair Jay Powell or the independence of the Fed? Well, Anne-Marie, I have repeatedly said the Fed has two duties, and I believe that
• 14:30 - 15:00 monetary policy is a jewel box. It's got to be preserved. And then they have regulatory policies. And I think we can have more of a discussion because the Fed is one among three bank regulators, and there's the Fed Comptroller of the Currency and the FDIC. So I think it's very easy to delineate between those two. The moment. No concern.
• 15:00 - 15:30 No concern. When you talk to Fed Chair Jay Powell at the moment, doesn't sound like they feel like they need to step in on this unraveling we saw last week with the bond market. Does the Treasury have any plans to do something if this was to become more unnerving? Well, look, the Treasury has lots of lots of things we can do. And but again, I think we're a long way from that. But all options would be on the table. Sure. But but but again, we have a big tool kit that we can roll out.
• 15:30 - 16:00 We do regular off the run buybacks. We could up the buybacks if we wanted. So just finally, I want to get your thoughts on something you told me, John and Lisa, in February, which was that in your old world you would be that person with your ear against the door trying to understand what policymakers were doing so that you could predict where financial markets would go. In this moment, where we hear from top executives constantly.
• 16:00 - 16:30 Today, it was the Goldman Sachs CEO. Last week it was Jamie Dimon. And this uncertainty, especially around tariff policy, what advice would you be giving to your old self to to look at the whole policy? Because, you know, again, not you, but others in the media can pick one factor. So right now it's tariff, tariff, tariff. But we have you mentioned we have tax, tax tax coming up. We have deregulation, deregulation, deregulation.
• 16:30 - 17:00 So, you know, it's a mini the leg stool. And I would try to think about, you know, what's happening. The tariff sequencing was always going to be first, the tax bill is going very well. And I think I've been pleasantly surprised at how quickly that's moving along. And then deregulation, you know, from our area on the financial side and in the rest of the economy, that takes a little longer. But that will start kicking in September, October, in the fall. And those are going to be very powerful.
• 17:00 - 17:30 I believe he described as a three legged stool. And right now, everyone is focused on one part of that leg, and that's the tariffs, as you say, when it comes to the tax cuts right now, what the market is expecting and what could get done in Congress based on how slim the majority is for the Republicans is just an extension of current policy. I think that's wrong. I think that the underreported story in the media, the story this funded report doesn't get reported enough is a democratic chaos. But that the underreported story is the
• 17:30 - 18:00 remarkable Republican unity led by President Trump. Speaker Johnson on First Try, got instructions out of the House for the budget. He passed a clean C.R. First try. Senator Leader Thune pinned it back to the House very quickly with their instructions. And I had something along with Kevin Hassett had an NBC chair called the Big
• 18:00 - 18:30 Six, which also includes Leader Thune, Speaker Johnson, Senator Crapo, Committe, committee chair Jason Smith. And everyone's very aligned. And there going to be a lot more bells and whistles other than in to other than just changing the date on Tcja. So your pitch right now to financial market participants, to consumers is you need to see the entire picture. Well, you need to see the entire
• 18:30 - 19:00 picture. And it was President Trump said the other day, stay cool. It was my message when I was out with you on April 2nd, it was to the countries, these are maximum rates. So you ask if it was a maximalist strategy. If you don't elevate, this is your maximum rate, so don't elevate. You have in markets the upside barrier. You don't have unlimited risk and then come to us and we will negotiate in good
• 19:00 - 19:30 faith. Can you guarantee clarity in 90 days? I think clarity is the through the eye of the beholder. But I can guarantee you that we're going to run a robust process. And I think the market can take great comfort in that. So maybe some of that uncertainty starting to evaporate. Yeah, if we measure uncertainty by the VIX. I think that the VIX. I don't want to make market calls, but I
• 19:30 - 20:00 think the VIX spiked and is likely peaked.