WASHINGTON – Some of President-elect Donald Trump's Cabinet nominations have raised hopes that his trade and other economic policies will not cause major disruption or bring back inflation. But that could turn out to be wishful thinking.
Based on the record of his first term in the Oval Office and his current statements of intent, Trump's second term could mark a break with the broadly bipartisan consensus that has shaped U.S. economic policy for more than 50 years.
This consensus centered on calls for more foreign trade, less government regulation of business, tax cuts, and other fiscal stimulus when necessary to maintain steady growth and low unemployment. Although Republicans tended to place more emphasis on one element or another than Democrats, the overall focus remained largely the same.
Proponents of this approach took heart when Trump appointed billionaire investor Scott Bessent as his treasury secretary. Bessent is a well-known name in the hedge fund world and worked for several years under longtime financier and Democratic supporter George Soros. Wall Street immediately cheered the selection through rising stock prices.
But the very next trading day after Bessent's appointment, Trump announced plans to impose 25% tariffs on Canada and Mexico, as well as 10% more on Chinese goods, which were already under pressure thanks to the trade war he started in his first term be heavily taxed. The aim was to pressure Mexico in particular to curb the flow of fentanyl and migrants across its borders.
During the election campaign, Trump proposed tariffs of up to 20% on all countries and 60% on China.
And on Wednesday, Trump said he would bring back Peter Navarro as senior trade and manufacturing adviser. The fiery China hawk and former UC Irvine professor clashed with other, more moderate top officials in Trump's first administration. Navarro was recently released from a four-month prison sentence for defying a congressional subpoena related to the attack on the Capitol on January 6, 2021. (Navarro did not respond to text messages seeking comment.)
“If there was any illusion that Bessent's election would have an ameliorative effect, it has been greatly exaggerated,” said Christopher Rupkey, chief economist at Wall Street research firm Fwdbonds, predicting more fireworks inside the White House, and outside .
“At some point, companies are going to go to Mar-a-Lago (Trump’s estate) and start complaining loudly,” Rupkey said.
In some ways, Trump's picks for other Cabinet positions and key economic-related positions in the White House are also a repeat of his past performance. There are billionaires, notably Elon Musk, who have been named head of a new department of government efficiency; and traditional conservative economists like Kevin Hassett, an American Enterprise Institute graduate who was tapped to serve as director of the National Economic Council and play a key role in formulating White House economic policy.
At least some of Trump's nominees are unlikely candidates, notably Rep. Lori Chavez-DeRemer (R-Ore.), a Latina who was a rare Republican supporter of greater organizing rights for unions and had the support of the Teamsters leader.
Heidi Shierholz, president of the left-leaning Economic Policy Institute, welcomed Trump's choice of Chavez-DeRemer as labor secretary. Chavez-DeRemer has personal ties to the labor movement. But Shierholz wondered what difference she could make. As with Trump's first-term Labor minister, Alex Acosta, she said Chávez-DeRemer would likely face significant restrictions.
“Trump does not tolerate dissent; “I don’t have high hopes,” Shierholz said.
“Trump’s eclectic style is on full display in his Cabinet appointments,” said Michael Genovese, author of “The Modern Presidency” and director of the Global Policy Institute at Loyola Marymount University. Still, he said, “the only common denominator in personnel and Cabinet selection was loyalty to Donald Trump.” … Trump likes to break things, and he has a lot of people around him who are more than willing to break things. “
Genovese added: “After his frustrations in the first term when insiders undermined the president's wishes, he will not tolerate such insubordination in the second term.”
Furthermore, Trump's first term could serve as a guide: His economic and other policies could also be heavily influenced by a kitchen cabinet of informal advisers and an inner circle of confidants who share his instincts and views on the economy, particularly his preference for tariffs as economic policy Main weapon for rebuilding American manufacturing and reducing the US trade deficit.
This impulse toward protectionism and abandonment of the global economy could once again spark a major battle within the Republican Party as two fundamentally contradictory visions collide.
One focuses on boosting domestic production, which could be helped by reversing trade deficits and reducing the role of the dollar. This “America First” strategy seeks a return to the policies that prevailed at the beginning of the last century, when U.S. manufacturing was protected from overseas competition by high tariff walls – that is, high surcharges on imported goods made products too expensive to compete with US products.
The other approach, more favored by Wall Street, assumes that an open global market will provide lower prices for consumers and more opportunities for American companies to tap capital markets and expand abroad.
American multinational companies and their subsidiaries spent about $200 billion on plant and equipment and employed about 14 million outside the U.S. in 2022, the most recent year for which data was available from the Commerce Department. Their total foreign sales are more than $8 trillion, with almost half in Europe and most in Asia.
Globalists are not convinced that reducing the trade deficit is critical to U.S. interests.
And they note that countries previously responded to high U.S. tariffs by increasing their own taxes on American goods. Economists say this will almost certainly lead to a rise in consumer price inflation, which has fallen from near double digits in 2022 but is still about a percentage point above policymakers' 2% target for core inflation.
“Any tariffs on all products at any time, from 10% to 20%, are pretty alarming to business leaders,” said Jeffrey Sonnenfeld, a professor at the Yale School of Management and an expert on leadership and business management.
Trump has named billionaire investor Scott Bessent as his treasury secretary.
(Vincent Alban/Bloomberg via Getty Images)
Sonnenfeld said Trump's appointment of Bessent was “extremely reassuring” and suggested that if confirmed by the Senate as expected, he could bring a moderating influence.
“Scott Bessent is definitely the adult in the room,” Sonnenfeld said, comparing him to another wealthy Wall Street boss, Howard Lutnick, Trump’s pick for commerce secretary.
“There will be some natural tension between Lutnick and Bessent as we move forward,” he said.
Michael Pettis, an American finance professor at Peking University in Beijing and foreign senior fellow at the Carnegie Endowment for International Peace, agreed that Bessent was an excellent choice.
As in the first term, China is likely to be a major target of Trump's foreign investments and trade fights, including tariffs that President Biden has maintained while placing greater restrictions on Chinese access to American technologies.
“Scott Bessent understands the economy systemically,” Pettis said. “I think he could have a very positive influence. The real question is to what extent will he determine the Treasury and economic policy in general?”
Bessent spoke of tariffs as a negotiating tool and more recently advocated targeted tariff increases for reasons of national security and to create a level playing field. And he spoke of the need for a “more activist approach at the international level.”
In recent days, Trump also appointed as U.S. Trade Representative Jamieson Greer, the former chief of staff to Robert Lighthizer, the USTR in Trump's first term who renegotiated the North American Free Trade Agreement and enforced tough trade measures against China.
To some who have followed Trump's appointees, it is clear that he wants to avoid the internecine White House confrontations that characterized the early months of his first term and be more forceful in implementing his agenda.
“I think there is a strong economic plan that reasonable minds may disagree about. Tariffs will be part of the overall plan,” said Daniel Ujczo, senior counsel specializing in trade at the Ohio law firm Thompson Hine.
“This government will not be shackled by the old orthodoxy about what you can and cannot do,” he said. “I think there is a recognition in this government that these voters elected them to do something. Voters were less concerned about what this thing was.”