Treasury Secretary nominee Scott Bessent testified before the Senate Finance Committee, elaborating on Trump administration priorities, including taxes, tariffs, and sanctions. He also stated he would press China to resue it’s agricultural purchases the country agreed to in the China Phase 1 agreement.
Key takeaways:
- Fed independence: Bessent reaffirmed his support for Federal Reserve independence, disputing claims that President-elect Trump opposes it, despite Trump’s past remarks on monetary policy.
- Taxes and spending: “The United States does not have a revenue problem — it has a spending problem,” Bessent said, saying that discretionary outlays — those outside of entitlement programs including Social Security and Medicare — had swelled an “astonishing” 40% over the past four years. Bessent called extending the 2017 Republican tax cuts “the single-most important economic issue of the day.” He emphasized making Trump’s tax cuts permanent and introducing “pro-growth” tax relief for manufacturers, workers, and seniors. Bessent warned that the U.S. faces an economic crisis that will hammer middle- and working-class people if the 2017 Republican tax cuts aren’t extended before they expire. He committed to keeping the IRS Direct File program operational this season but left its future uncertain. Cutting government spending remains a core focus.
- Says China’s economy is in recession. He described the world’s No. 2 economy as being in a recession, if not a depression. Bessent, in further bearish remarks, also described it as the most imbalanced economy in the world, where the military is put first and where authorities are trying to export cheap goods to the rest of the world as a way to keep growth afloat. His comments came days after data from Beijing showed China’s overall trade surplus soared to a record last year, driven by strong exports. The surplus jumped to an unprecedented $992 billion in 2024, 21% higher than the previous year. China also just reported that its economy grew 5% in 2024, fueled by fourth quarter gains (see related item below).
- Tariffs: Bessent outlined using tariffs to counter unfair trade, generate revenue, and gain leverage in negotiations, such as pressuring Mexico on fentanyl issues. He showed interest in carbon-tied tariffs as a potential policy. The full cost of tariffs will not be passed on to consumers, Bessent said, citing the history of tariffs and academic theory. “If we were to, say, use a number that has been thrown around in the press of 10% [across-the-board tariffs] then traditionally, the currency appreciates by 4%, so the 10% is not passed through.”
Trade Policy with China
Regarding trade policy with China, Bessent outlined a three-pronged approach to tariffs:
- Targeted tariffs to address unfair practices by specific industries or countries like China.
- General tariffs as revenue generators for the federal budget.
- Tariffs as negotiation tools for specific policy objectives.
He also expressed support for further restricting and monitoring U.S. investments in Chinese companies, citing concerns about China’s industrial policy and its impact on critical sectors
China’s Agricultural Import Commitments
Bessent emphasized that China has not fulfilled its obligations for agricultural commodity purchases as agreed upon in the Phase I deal.
He stated that China’s agricultural purchases from the U.S. have declined significantly, with 2024 purchases dropping 16% compared to the previous year.
The nominee pledged to take immediate action if confirmed:
- He would press China to resume its agricultural purchases as per the agreement.
- Bessent proposed discussing a potential “catch-up provision” with President Trump to compensate for the shortfall in Chinese purchases over the past four years.
- Support for U.S. farmers. Bessent highlighted his personal connection to farming, mentioning his family’s involvement in soybean and corn production. Bessent owns up to $25 million of farmland in North Dakota that generates revenue from soybean and corn production, according to his financial disclosure forms. “I may be the first Treasury nominee in a long time that knows what a section is —640 acres (one square mile),” he said. He emphasized his sensitivity to farmers’ concerns, stating, “The American farmers have been very loyal. Ninety percent of rural voters voted for President Trump, so they should know that their interests are his interests.”
Rural America and Small Businesses.
Bessent acknowledged the importance of supporting rural America and small businesses, recognizing them as a significant part of President Trump’s base. He emphasized the need to help Main Street and rural communities, which he noted have suffered in recent years.
Ukraine Sanctions
Criticizing the Biden administration’s approach to Russia sanctions, Bessent called for stricter measures, promising to escalate sanctions to force negotiations on the Ukraine war. Bessent warned that “if any officials in the Russian Federation are watching,” they should know he’s “100% on board” for raising sanctions further to bring Russia to the table on the war in Ukraine.
Sen. Young: Trump Administration Signals Targeted Tariff Strategy
Sen. Todd Young’s (R-Ind.) recent comments to reporters shed light on the Trump administration’s evolving approach to tariffs. Based on conversations with Treasury Secretary-designate Scott Bessent, Young said the administration appears poised to adopt a more targeted approach rather than the sweeping tariffs initially suggested during the campaign.
Highlights:
- Selective tariffs: Young revealed Trump plans to “apply tariffs selectively, in a targeted fashion,” moving away from a universal tariff on all imports — a proposal that faced criticism from Republican lawmakers.
- Strategic leverage: While targeted tariffs are likely, sweeping tariffs may still be used temporarily as negotiating tools, such as addressing illegal migration and drug smuggling concerns with Mexico and Canada.
- Policy implications: This shift reflects a potential balancing act between protectionist goals and the economic concerns raised by lawmakers and experts. Tariffs could serve as a broader foreign policy tool rather than purely economic measures.
- Continued uncertainty: The exact trajectory of Trump’s tariff policy remains uncertain. Businesses, legislators, and international partners will be closely monitoring for further clarity as the administration refines its trade strategy.
China’s Economy Grew 5% in 2024, Fueled by Q4 Growth
China’s economy achieved 5% growth in 2024, hitting the government’s target largely due to a stronger-than-expected fourth quarter.
The National Bureau of Statistics said a string of stimulus measures since September helped lift confidence and eventually put the country on track to achieve the growth target.
Analysts say exporters front-loading their orders ahead of potential hike in U.S. tariffs also played a role in boosting the fourth-quarter growth. Despite gains in factory output (+5.8%) and retail sales (+3.5%), the economy showed signs of deflation for a second consecutive year. Challenges persist with fixed-asset investment missing targets, a shrinking population for the third year, and a 5.1% jobless rate.
Housing market conditions improved slightly, though construction remains subdued. Chinese stocks were mixed after the data was released in the morning, but extended their gains during the afternoon session.
The government expressed optimism about 2025, though investor confidence remains cautious. The average forecast by economists polled by Nikkei Asia is for China to grow 4.4% this year, before slowing further to 4.1% next year. China is expected to unveil its official growth target at an annual legislative meeting set to take place in March.
Xi Jinping and Donald Trump Hold Call to Discuss Trade, Fentanyl, and TikTok
Chinese President Xi Jinping and Trump held a phone call on Friday, described by Trump as “a very good one for both China and the U.S.A.” The two leaders discussed trade, fentanyl, TikTok, and other pressing issues, with Trump expressing optimism about making the world “more peaceful and safe.”
While Chinese state media provided limited details, Trump posted on Truth Social about their shared commitment to global stability. Notably, the call comes amid heightened tensions over tariffs, the opioid crisis, and the pending removal of TikTok from app stores.
Trump also invited Xi to his inauguration on Monday, but China will instead send Vice President Han Zheng.
Meanwhile, Beijing’s Foreign Ministry emphasized the importance of cooperation and managing differences with the new U.S. administration. However, tensions are expected to rise as Trump has appointed critics of China, such as Sen. Marco Rubio as Secretary of State, signaling a potentially confrontational stance.
In a related matter, the U.S. Supreme Court has upheld a divest-or-ban law targeting China-owned TikTok, leaving the video app potentially facing a blackout for its 170 million U.S. users on Sunday.
