Tariffs and more from the US Treasury’s perspective

Scott Bessent, Secretary of the Treasury in the new Trump administration, has been making the rounds this month to talk about tariffs, banking and the economy, foreign and domestic.

On March 16 he paid a visit (watch from the 10- to 20-minute mark) to the long-running weekly American political show Meet the Press, where he was reassuring about the stock market.

Over the past month the S&P 500 is down by 6.95 percent and the Dow Jones Industrial Average by 5.50 percent. Bitcoin, which recently hit an all-time high, is down for the month by about 16 percent against the US dollar.

“I’ve been in the investment business for 35 years,” said Bessent, “and I can tell you that corrections are healthy; they’re normal. What’s not healthy is straight up. You get these euphoric markets. That’s how you get a financial crisis.” In any case, “one week does not make the market.”

As for the US economy, Bessent said: “We are going to have a transition, and we are not going to have a crisis.” He refused the host’s request to guarantee that there would be no recession and said that continuing the Biden administration’s policies – notably its excessive spending – would have yielded a financial crisis.

The tariffs

April 2 is the big day, when the US will be rolling out “reciprocal” – that is, matching – tariffs, and levying them on allies and adversaries alike. According to Bessent, rather than set up permanent tariffs, the administration is sending a simple message: “If you drop yours, we’ll drop ours.”

Pressed on the fear that tariffs will raise prices, Bessent cited concessions already made by US trading partners, notably Mexico and Canada. “We’ve already seen some of our most imbalanced trading partners come forward and want to drop their tariffs,” he said. Trump, he continued, has set up a win-win scenario, where the US either sees its trade become “fairer” or else takes in “substantial revenues.”

What about the world’s great factory-country? Bessent believes that Chinese manufacturers will “eat the tariffs” rather than raise prices and that the currency will adjust. In any case, he said, the administration’s approach is not single but triple. It seeks to combine tariffs with deregulation and cheaper energy.

The banks

In his speech to the Economic Club of New York, on March 6 (transcript here), he described the international trading system as a “web of relationships – military, economic, political” – no single aspect of which can be taken “in isolation.” Rather than a “zero-sum game,” it is “inter-linkages that can be reordered to advance the interest of the American people.” One of these inter-linkages is credit.

Bessent wants to see banks lend, and seeks to encourage them through deregulation. As he told the club in New York, “backward looking policies in response to an undercapitalized system predating the global financial crisis almost two decades ago should not drive today’s approach.”

Bessent often speaks first of small banks, which, as he told Breitbart on March 17, are subject to excessive regulations on asset and geographical diversification, even though they have a comparative pittance on the books and often serve no more than a town. “Despite holding only 15 percent of industry assets and deposits, community banks make up 40 percent of loans to small businesses, 70 percent of agricultural loans and 40 percent of commercial real estate loans.” And they are “overloaded with unproductive reporting requirements that have little to do with reducing material financial risk.”

Big banks, meanwhile, are “hung up”, “capital constrained”, “forced to hold reserves against the safest asset, government bonds.”

Part of his solution is to loosen or get rid of the Supplementary Leverage Ratio (SLR), the American implementation of the Basel III Tier 1 leverage ratio, whose capitalization requirements, he argues, assign too much risk to the safest of assets, US Treasury bonds.

The objective here, he told the club, is to establish “a culture that focuses on material risk taking, rather than box check checking.”