Treasury Secretary's high-stakes gamble

Investment Analysis Clubs Macro Economic Trends and Risks
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https://www.wsj.com/politics/policy/scott-bessent-trade-war-d36022d7?mod=hp_lead_pos2

Wall Street’s Best Hope to End Trump’s Global Trade War Is One of Its Own

Treasury Secretary Scott Bessent, a former hedge-fund manager, is trying to execute one of highest-stakes gambles in modern political and economic history

By Gregory Zuckerman, Josh Dawsey and Alexander Saeedy, The Wall Street Journal, April 11, 2025

…
Treasury Secretary Scott Bessent is trying to pull off a macro trade of sorts on Trump’s ability to remake the U.S. economy.

It is one of the riskiest and highest-stakes gambles in modern political and economic history. If Trump’s trade strategy sparks a painful economic downturn, Bessent will share the blame with his boss…

Trump is now giving Bessent a leading role in negotiating with countries…Trump aides said he liked Bessent more than Howard Lutnick [who was appointed Commerce secretary], in part because he thought Bessent was better on TV. [Rolling eyes. – W]…

Bessent and the Trump team were already considering a pivot: building an alliance against China. …

Regardless of how trade negotiations play out, global economies are likely to be left with higher tariffs than at any time in a century, potentially weighing on growth and pressuring inflation.

By Friday, investors were once again dumping key U.S. bonds. [end quote]

It’s impossible to keep politics off the METAR board when the administration is up to their elbows in meddling with the economy. The Treasury Secretary is responsible for formulating and recommending domestic and international financial, economic, and tax policy, participating in the formulation of broad fiscal policies that have general significance for the economy, and managing the public debt.

Recent Treasury Secretaries seemed to focus primarily on domestic economic matters (especially taxation and managing the public debt) rather than international negotiations.

It’s going to be hard to build an alliance with countries who considered themselves allies less than 4 months ago but have been stunned by hostile tariffs and comments from the Trump administration.

Nobody knows what’s going to happen when the Decider in Chief changes his mind practically every day under the influence of advisors who have different agendas.

Trump didn’t renew Janet Yellen as Federal Reserve Chair in 2018 because she was so short. He chose Bessent because he looks good on TV. Heaven help us.

Wendy

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Great plan! Lots of countries will want to enter into a trade alliance with this untrustworthy administration.

Everyone’s gotta be thinking they’ll eventually get hosed.

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I don’t know about looks, but (having heard them both on CNBC) Bessent speaks better than Lutnick. Communication is important, especially when negotiating.

DB2

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Some months ago, there were rumors of the US and Canada agreeing to cut Mexico from the USMCA. Seems that an economic alliance between the US, Canada, and the EU, would not be so disrupting, because labor and operating costs are roughly similar. The “great sucking sound” starts, when one, or two, members of the coalition have dramatically lower operating costs, and the “JCs” flee to the lowest cost area.

But yes, this “51st state” nonsense is not constructive.

Steve

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Or maybe it’s because Bessent is not so in-your-face greedy as Lutnick?

Steve

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Dear Wendy,

The problem for the bond market is the tax cut.

The corporate press is not reporting accurately, but they have begun to mention Liz Truss. As if it is only trivia.

Dear Steve,

Both advisors will go the way of Sec. Tilerson.

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Rex went out of bounds As long as they are loyal lickspittles, who only say what the boss wants to hear, they will be golden.

Steve

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Both of them have been too big in the business world to only play third fiddle.

The Treasury Secretary has already pushed out the other advisor. Musk is pushing out Navarro.

Watching Trump in action…Rex finally said it. The others all think it.

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Navarro was in the administration on the last go around. From what I read, he is the leader of the anti-China push, which puts him in conflict with Musk.

That brings the musical question: was the backdown on tariffs on electronics for Musk’s benefit, or a realization that no-one outside of China has the capacity to replace all Chinese production, quickly. Denied their electronic toys, the “base” would bark. And, the sky high tariffs on Chinese electronics would not produce the revenue to facilitate another big “JC” tax cut. Taxing ChiCom electronics at only 20% will produce lots of revenue.

Steve

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Just one of 87 “plans” and trial balloons that were floated on January 12th, between the hours of 8am and noon.

With their cannons aimed squarely at their on feet, ready, fire, fire, fire. Oh, also, aim.

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I am leaning more in this direction every day.

After the extreme market reaction (and the recovery), I don’t think has the fortitude to go back to 20% across the board tariffs. And the recent “blink” on tech from China and I think we may have achieved a bottom, or were at least very close to it.

I am strongly considering moving my cash off the sidelines. I no longer think this admin has the stomach for a self-imposed bear market.

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You may have a good idea there. Becoming more clear that the money interests rule. Seems they will tolerate “revenue” tariffs, that bring in money to cover their tax cut, and, eventually, may incentivize reshoring some production. But cost them big money, by potentially crashing the economy with huge tariffs, and they pull TIG’s reins.

Steve

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What about a self-imposed recession?

You’re not seeing that?

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Then again,

  • a lot of damage is already done
  • they may trot out that Mar a Lago accord
  • … or dream up something else

On the other hand, perhaps they consider the free trade zone with Europe, as put on the table by the EU.

Time will tell.

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Not just with 10% tariffs. 20% would make it more likely.

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I sure as hell would not put a dime in.

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I bought some TQQQ last week for a trade. It is now up 15%.

DB2

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Agreed. I think there are safer places than domestic stock and bond markets right now. I’m about to put a chunk of my money market into $BNDX (Vanguard world bond market excluding US). I see this as a rational choice no matter what the current circumstances are, so a no-brainer. And add to $VGK and $VXUS in the IRA as a means to keep equity exposure w/ limited Trump exposure. This move is all about protecting the down-side at the risk of an upside, and I’m fine with that.

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Interesting premise. I am currently 40% cash and, at age 67, have enough to live out my life comfortably on the 4% rule (with the usual disclaimers). I was seriously considering using the current bump to pull even more out of equities. Something to think about, for sure.

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What about the effect of uncertainty on consumer and business spending?

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