Treasury Sec. Scott Bessent Talks Fed criticisms, trade talks

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I'm joined by the US Treasury Secretary Scott Bessett this morning on the heels of this agreement. The President announced last night last week, you joined me, John and Lisa, and you said you were going to Japan for the World Expo, wasn't really going to be focused on trade. You came back. The President had a seventy five minute meeting as well last night with the trade negotiator. You were in the room, and he got this deal with you alongside him over the finish line.

Even though the.

Reporting at of Washington that actually the discussions with Japan were quite difficult. What changed in the last twenty four hours.

Look, Anne, Marie.

We had some discussions about the overall US Japan relationship, which was one of the strongest in the world when I was in Tokyo and Osaka, and then we got back. There were elections on Sunday. LDP did slightly better than expected that they don't have a majority. Japanese government was ready to deal, and as president, only President Trump could do.

Well, there is a photo circulating on Twitter from Dan Scavino and you actually see a sharpie x out of some what looks like preliminary deals for even more concessions with Japan. I want to ask you about this fifteen percent tariff free? Is that the new floor now for trading partners when you're going into these negotiations.

Well, I think it's very important to note that fifteen percent for Japan for reciprocal tariffs for autos, that is a different kind of deal. But because the Japanese proposed a very innovative solution, We've been working with them for months, the trade team, myself, Ambassador Greer, Secretary Lutnik, and they came to us with the idea of a Japan US partnership where they are going to provide equity, credit guarantees and funding for major projects.

In the US.

So they got the fifteen percent rate because they were willing to provide this innovative financing.

Mechanism.

There's a lot of Japanese FDI into the United States already. Is this new capital?

Oh no, this is all new capital.

This is all new capital, and it is going to be targeted at the strategic industries. The President Trump and this administration belief that we have to de risk on During COVID, we saw our vulnerabilities, whether it was in medicine semiconductors. So we are going all in over the next few years to de risk our supply chains and this deal, thanks to President Trump, is going to be part of that.

When it comes to the fifteen percent rate on autos, this means that Toyota is basically paying a cheaper rate than say GM if they have inputs from other countries. Still they're still at the twenty five percent auto rate. Do you see the auto rate leveling out to something lower than twenty five percent.

We'll have to see.

And again those are just GM components.

There's also the.

USNCA, the portion of any autos assembled in the US, and then of course GM and especially Ford. I think Ford has the largest US production. You're building in the US, there are no tariffs, so when.

It comes to what's next, we know the EU negotiators are in town. This fifteen percent rate feels like potentially a floor. Could anyone get below fifteen percent? Is the European Union still trying for ten percent minimum baseline tariff.

Well, again, the fifteen percent is a result of this very innovative package that the Japanese came with and your present Trump being able to push them to do even more so.

Has Russels come up with anything innovative?

Not yet, But again, talks are going better than they had been. I think that we are making good progress with the EU, but as I've said before, Emory and the EU has a collective action problem twenty seven countries. Great thing about dealing with the Japanese. I've been going to Japan since nineteen ninety I think this weekend was my fifty second trip. And the Japanese government moves of one entity. They're highly organized across all level of government.

So you say that talks are going better, We just have a story hitting the terminal this morning from our colleagues in Europe that the European Union is readying one hundred billion dollars euros. If there is no deal in place, they will impose thirty percent tariffs on those one hundred billion euros worth of goods. Do you think we're going to get to that place?

I think it's a negotiating tactic, and it's what I would do if I were in their place. But Amery, Remember we are the deficit nation. They're the surplus nations, so any kind of a escalation in trade problems will always hit them worse.

I want to also talk about what's going on with China. You're going to Stockholm Monday Tuesday to meet with your Chinese counterparts. Are we going to continuously see the discussions revolve around where Earth's and export controls or they're going to be other items on the table.

I think we're in a very good place with China now and we can start moving on to bigger discussions. As I've said many times, there is the potential for a big, beautiful rebalancing between the US and China. President Trump is committed to bringing back precision manufacturing to the US, and as we become more of a manufacturing economy, China is highly imbalanced. They account for thirty percent of all the manufacturing output in the world. That's not sustainable. We

And so the purchasing agreement from Trump's first administration, he had a deal with China on the Phase one purchasing agreement on agriculture.

Well, again, that's another way that we could bring this imbalance relationship into balance. So we will be talking about purchasing agreements, especially ag and to refresh everyone's memory, we had the purchase agreements. Chinese lived up to the purchase agreements during President Trump's final year in office, and then the Biden administration didn't enforce those purchase agreements.

So we're going to let bygones be bygones. We're going to look forward.

And I think we can come up with some very interesting purchasing agreements. As you know, President Trump is committed to the American farmers.

Well, looking forward, you told me John and Lisa last week, the market doesn't need to worry about August twelfth, that's the deadline for this current dayton between Washington and Beijing. What's the new deadline going to be?

Well, again, I think that we could roll it forward, maybe in a ninety day increment and I think the good news here is that we are back on track with the Chinese negotiations. On April second, President Trump told countries, here's your reciprocal rate. But that was the ceiling if you do not escalate. If you don't escalate, this is the max. The Chinese chose to escalate. But now we both sides have de escalated, and I think we can get into a very good cadence of regular meetings with them.

In the world.

We do not want to decouple with the Chinese. We just need to de risk part of our supply chain.

Does regular incremental meetings include a meeting between President Trump and Shijipang this fall.

I do know that a party chair she has invited President Trump to visit China. I don't know. I don't have dates on that. I don't know if the President's accepted. I know they have a fantastic relationship on a personal level, which I think forms the basis of everything between the US and China.

Local reports in China, we're talking about the two meeting on the sidelines of the APEX summit in South Korea this fall. At the end of October early November, or maybe President Trump going to China first. Could we see a meeting that soon? You think a meeting within this year can happen.

Again, I'm not privy to the President's travel schedule beyond September, so we'll see.

Nothing before a meeting with Chighing paid before September, nothing before Labor Day. So in the last week I do want to go through something that's going on with China. They've imposed exit bands on a Wells Fargo banker, a commerce department employee, and according to Microsoft, they hacked into their software. Will you address these actions at the talks in Stockholm.

We're going to address a whole host of things, and you know, obviously things like that will be on the agenda with my Chinese counterpart.

You had said to me last week that the Nvidia H twenty chip was potentially a chip in negotiations, a mosaic part of the deal. Do you think China's doing this for leverage at the trade table?

Absolutely not, absolutely not, because again, the H twenty, while it is an advanced chip, is not one of the most advanced chip. I think if we were think about the Nvidia stack, the HP would be something fourth fifth down the stack, and my understanding is that Huawei can produce something with similar applicacy.

So China's malicious behavior, even just in the past week, even targeting a commerce department employee. Do you think they're doing this to have leverage with the United States?

Well, I can tell you in Stockholm it's not going to give them any leverage with me. And it's a big, sprawling bureaucracy. And sometimes I think we may see the arrests may have been in a province, the central government may not be aware of it. So I would highly doubt that something at that level that they have wanted to engage with the US. We are engaging with them, and I think both sides want to move forward in a productive way.

But you'll raise these issues. Yes, So now that the administration is getting trade deals across the finish line Japan, Indonesia, Philippines, yesterday you said the European Union potentially in sight. Do you think the Federal Reserve is gonna have enough clarity by September to cut interest rates?

Uh?

Again, I I'm not really sure what the Federal Reserve is looking at because, Uh, thus far we have not seen or we've seen very little, if any uh price pressures from the tariffs, and if we were to see those, uh, they wouldn't be inflationary, be a one time price adjustment. So I again, I I think that their analysis of tariffs is a bit off. Well.

Governor Waller made this exact case to us on surveillance on Friday, and it sounds like he might dissent at this meeting. He also said the President hasn't called him yet. He's one of these names that are circulating around. Could he replace FED chair J?

Powell?

Is he a name you're looking at? Have you reached out to him?

I think there are a lot of strong candidates, including several who are on the main board and perhaps regional bank presidents.

So are there other names outside of Kevin Hassett, Kevin Walsh, Christopher Waller and you yourself has been circulating There's.

A long list, and like I said, there's some great candidates.

And have you reached out to everyone on both those lists.

I'm not going to talk about the process, but we are getting the process underway. Obviously it's going to be President Trump's decision and we're not in a rush.

So, oh, you're not in a rush. But the President continuously says he wants to get rid of the FED chair J.

Powell.

Mahmade Larian yesterday said he should resign.

Do you think J.

Powell should step down to protect the institution?

The couple of things.

One, the President said he is not going to Firechair Palell. I was somewhat surprised that Muhammad al Area came out and said that.

And what I've come.

Out and said is that I believe that it would do Chair Pale a favor, and he would be doing the institution of favor if he did an internal review separate monetary policy from everything else. And this is something that Larry Summers and I agree on, is this mission creep from the FED is endangering their independence of monetary policy. So all these other things that they're engaging in could threaten monetary policy. So it is a big, sprawling institution.

But you want the.

Man that you guys don't think is doing a good job to run that review.

What's that you want?

The man Powell, which you and a president don't think is doing a very good job to run the review of the institution.

Well, I think that it could be a committee, it could be a group. They could invite outside experts. In the Bank of England after the twenty twenty two a great hike shock went back and did a very good examination of what went wrong with monetary policy. That brought in outside experts. So, you know, I think an internal review would be a good start, and if the internal review didn't look like it was serious, then maybe they could be an external review.

Have you communicated this directly with J Powell? Do you guys continuously have your once a week breakfast lunches either at the FED or the Treasury.

I gave a speech on Monday night on bank deregulation, bank regulation, the future of regulation, which is, you know, aside from monetary pol see, I think the most important thing for the economy.

The FED is one of three regulators.

There's the FED, the Office and Control of the Currency which sits under Treasury.

And the FDIC.

And I believe that all three of those should have important voices. And I believe that the regulation has been much too stringent since the Great Financial Crisis.

We are seeing this big.

Build up outside the regulated financial system. I think I saw something two days ago. The private credit is up ten x. Not saying it's a financial stability problem, but I am saying that there's a regulatory arbitrage going on. But that was a long way of saying I saw a chair Palel at that speech.

And your launches in breakfast continue always, so you have a good relationship.

With him at the moment, we have continuing communication.

Last time you were on, you also talked about the potential next FED chair. You said his or her nomination is Governor Bowman also in the running.

Again I'm not going to name names, but.

There are good candidates. As I said on the board that there's several female regional bank presidents, and then there are some fantastic women outside the FED.

There's also Governor Kugler's chair that is open in January. Have you started that process.

It's a simultaneous process.

The Coogler chair is a fourteen year seat, so we'll be looking at that also. And again I think we have some very good candidates.

Given you just saw J Powell. Has he yet to tell you whether or not he is going to leave the board his governor seat by twenty before twenty twenty eight.

He hasn't yet.

My belief is that he will, and I think that it would be very good for the institution for him to do it, and I think it'd be very good for him personally.

To do it.

The President once said that he goes out and ryle's financial markets, and then he sends you, his Treasury secretary out to calm things. Things are pretty calm today, but when it comes to the FED chair, I know you love college basketball, and you talk about the President being Bobby Knight, and I know you love Dean Smith. Are you guys playing this good cop bad cop when it comes to talking about the FED talking about Jay Powell?

Not at all?

And Marie, the reason I think that I'm to the extent I'm able to calm the markets, and that doesn't always happen. I was in the investment business for thirty five forty years, But I think more importantly than that, I understand what President Trump is doing, and a lot of times he's won two three steps ahead of the market. And as you know better than anyone, the market wants instant explanation, they want clarity, they want.

Immediate gratification.

So I think that I am able to As a former practitioner, I think about when President Trump tells me what his goals are, I think about, what is the best way for me to give good framing to market participants for them to understand what he's doing. Because he always has a plan, it's not always obvious, So you.

Are communicating almost a strategic ambiguity that he likes to operate from.

Well, and I'm also trying to explain that there is a plan because look, these letters went out, everyone was, oh my gosh, these are high rates. And I think the president created maximum negotiating leverage and the market actually took it pretty well, took it pretty well.

Just to finish on that final point, then, do you think he's more in boldened to go for higher rates with trading partners now given the market is not pushing back.

Well, I think he's created a lot of leverage because he's created an ab situation. He is able to go to the trading partners and say, look, I am happy to take in this tariff income if you don't want to negotiate.

This is a high rate.

But the US is taking a massive amounts of tariff income. We had the first June budget surplus since twenty fifteen last month. We reported it this month, and so we are taking in substantial income. So President Trump is creating this leverage by saying, if you don't want to negotiate with me, I've sent you a letter with a high rate. You have at the high rate, or come and negotiate in better.

Fashion, because I'll tell you.

What was fascinating for me, and this was President Trump at his best, at his best was the Indonesians came with what I thought was a very good offer out of the Blox. President Trump kept pushing them. He raised the reciprocal rate when he sent them the letter, and five iterations later, the Indonesian trade deal was greatly improved, turned into a great deal for both sides.

Secretary Scott Besson, thank you so much for your time this morning.