Trend change: U.S. economic policy

Investment Analysis Clubs Macro Economic Trends and Risks
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It’s worth paying attention when Treasury Secretary Scott Bessent explains a new U.S. economic policy…especially when Mohamed A. El-Erian says so.

https://www.nytimes.com/2026/07/07/opinion/scott-bessent-trade-economy.html

America Was Being Played. The Bessent Doctrine Says Those Days Are Over.

By Mohamed A. El-Erian, The New York Times, July 7, 2026

Treasury Secretary Scott Bessent delivered a remarkably important speech on June 23 at the Economic Club of New York…Mr. Bessent put down a marker for how the United States plans to operate in a changing global economic system…

The leaders of tomorrow — whether destined for the C-suite or public service, in America and beyond — must adapt to this new world. It’s one in which considerations of national security, domestic politics and geopolitics no longer play second fiddle to traditional business interests in determining corporate and economic outcomes. Those business interests are now being actively sidelined…

The cementing of this economic regime change is based on Mr. Bessent’s unsparing diagnosis that, for decades, the United States was being played. America had essentially failed to recognize that economic security is integral to national security. Policymakers mistook historical comfort for enduring strength, operating under the naïve assumption that a growing roster of trading partners would engage with global markets fairly. Those days are over, he warned: “America welcomes its partners, and we are stronger because of them. But our partnership now carries expectations. And, in some instances, nonnegotiable obligations.”…

Five core principles now underpin the administration’s doctrine of economic statecraft:

National economic capacity is critical to economic security.

Trade and investment openness must be strictly reciprocated.

The United States must proactively set standards for emerging technologies.

The global dominance of the U.S. financial system must be actively protected and leveraged as an instrument of statecraft.

All of this must be aimed at visibly improving the welfare of American households.

The more likely outcome will be the broader weaponization of tariffs, investment and payment systems against economic rivals. This will be accompanied by a more forceful industrial policy, increased use of export restrictions and mounting pressure on third parties, including the threat of secondary sanctions… [end quote]

The previous policy optimized efficiency and resulted in lower prices for consumers. Any policy which moves away from this optimized state in order to increase national security, supply chain robustness, near-shoring or other factors mentioned in the article will be inflationary.

This is a major trend change that has already resulted in tariffs and other policies. The point is that these policies will now continue and be increased since they are part of a coherent strategic trend change.

Investors, take note.

Wendy

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Ok, then what are the standards on AI and crypto? Seems like both are the wild west.

I agree, but…

Hawkwin

Who thinks we have more to fear economically from our own than from a bad trade deal with Canada.

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Apparently we will continue to have M@GA policies for two more years. Will they stand the test of time? Or will we revert to low prices due to imports?

Yes, stability and security are important, but when it comes to $$, what will voters choose?

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Likely only those that can be achieved via EO.

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Shoppers will choose lower prices. Stability and national security aren’t in their wheelhouse so the government will have to force them. Prices will rise. Choices will fall. Voters won’t be happy.

Wendy

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True. Though that previous policy did cause inflation and unavailability of products when COVID threw a spanner into the supply chain.

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As a student of past pandemics (cf. “The Coming Plague” and several other books) I can tell you that the government response to Covid prevented potentially horrible, generations-long, society-changing problems that happened after previous pandemics.

The Covid supply chain problems are long resolved. They revealed our vulnerability. I’m not saying that new policies to shore up our security are wrong. I’m just saying that they will add to costs and will be inflationary.

On the grand scale this is probably worthwhile. But from an individual family’s point of view it will be a burden.

Wendy

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President Biden continued many of Trump’s policies and significantly expanded export controls on certain critical products, such as semiconductors.

And of course:
https://www.npr.org/2024/05/14/1251096758/biden-china-tariffs-ev-electric-vehicles-5-things
President Biden has quadrupled tariffs on electric vehicles from China — from 25% to an eye-watering 100% — in a move designed to bolster U.S. jobs and manufacturing.

There seems to be bipartisan support for tariffs on China goods and embargoing technology items to sChina.

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On the flip side new manufacturing in the USA could create good paying jobs and raise some folks into a higher income level.
There are always trade offs.

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Yes, that would be great and in fact it’s the objective of the tariffs.

But the products will be higher priced.
Wendy

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Bessent’s speech was full of hogwash. Our current economic statecraft seriously lacks a coherent strategy. Let’s take it point by point.

The first is that economic security begins with national capacity.

This makes sense. We should not prioritize low cost and must build capacity to produce the things that have national security implications. Developing next generation technology and scientific breakthroughs fuels this capacity. Slashing research budgets for no other reason than to punish “woke” universities is not congruent with building our national capacity.

The second principle is that America’s openness will be matched by reciprocity, which is the basis of durable cooperation.

We should ask Spain how this is going. JTT just threatened to stop all trade with Spain because they refused his demand to boost defense spending to 5% of their GDP. He directed Bessent to make it happen immediately, to which Bessent replied, “Yes, sir”. The reciprocal tariffs weren’t based on reciprocity of trade policies, but idiotically on a misunderstanding of trade surpluses and deficits. Later tariffs were used to punish countries that didn’t go along with US demands that had nothing to do with trade policies.

The third principle is that America will write the rules of the next economy.

As was mentioned earlier, America isn’t leading the effort to write the rules. If anything, we’re creating a free-for-all that allows for blatant corruption and self-dealing. It’s difficult to see how anyone other than the crypto bros, AI technocrats, and political insiders is benefitting.

The fourth principle is that financial leadership is a central instrument of statecraft.

The US’s leadership has been greatly diminished. We talk out of both sides of our mouth. Russian sanctions relief to lower gas prices shows our weakness. The Iran debacle further demonstrates that we’re a paper tiger.

The fifth and most important principle is that economic statecraft must serve the American people.

Nah, giving US chips to despots in the ME because they give money to the prez doesn’t serve the American people. Agreeing to sell F-35s to Turkey when they have close relationships with Russia and China doesn’t benefit the American people. Threatening Argentina if they don’t elect Milei doesn’t benefit the American people. Slapping tariffs on beef when Brazil convicts Bolsonaro doesn’t benefit the American people.

Bessent was wishful speaking…he probably wishes there was a coherent strategy, but there’s not.

If anything, the trend change is in-your-face corruption as economic policy.

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I could not agree more with your take.

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“We really have no idea what we are doing and could care less about helping working people.

But let’s give the appearance of know-how and seriousness by using words like statecraft.

We don’t do mere policy, we do statecraft.”

For good measure, they should have thrown in the word curate.

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