PETER IRELAND
President Trump has admitted that he struggled, at the start of his first term in 2017, to find suitable appointees to high-level administrative positions. He’s also signaled his determination, this time, to identify the best candidates early on. And, indeed, he’s already chosen two leaders for his economic team: Scott Bessent for US Treasury Secretary and Howard Lutnick as Commerce Secretary.
Scott Bessent is a highly successful hedge fund manager who was one of President Trump’s earliest supporters on Wall Street, going back to the 2016 campaign, and has been a close advisor ever since.
Bessent recognizes that the biggest economic problem faced by the US right now involves large and persistent government budget deficits, the correspondingly large and growing level of government debt, and the threat all that poses to the solvency of the US Treasury.
He believes — correctly, I think — that the best solution to these problems is to hold government spending fixed while doing as much as possible to promote US long-run growth. This will cause the debt-to-GDP ratio to gradually decline and thereby restore fiscal sustainability while minimizing the economic and political costs of adjustment.
Consistent with those aims, I expect that, as Treasury Secretary, Bessent will advocate strongly for deregulation and targeted tax cuts that will promote innovation and entrepreneurship that are essential for long-run growth. His Wall Street experience makes him appear as a more conventional appointee to head the Treasury Department, who can reassure financial market participants that the new Administration is committed to sound and sensible policies — policies that will promote economic growth and financial stability and also ensure that the US dollar remains a key global currency. And while he would not want to directly target any foreign exchange rate, I guess that Bessent would prefer to see stability in the dollar-yuan exchange rate in particular.
Howard Lutnick also comes from Wall Street and has also been a long-time supporter of and advisor to President Trump. One noteworthy element that Lutnick brings to the Administration is strong advocacy for cryptocurrencies. His participation may mean that the Trump Administration will be more open to innovation in the financial sector, as well as throughout the rest of the economy. President Trump spoke of crypto and other financial innovations on several occasions during his campaign, and his choice of Lutnick shows that he’s serious about following through.
It is also noteworthy that both Bessent and, especially, Lutnick have strongly supported President Trump’s call for higher tariffs and other restrictions on international trade. In interpreting the President’s statements, though, I think it’s useful to consider what another big investor, James Fishback, said in a recent speech at the Institutional Investor Fixed Income Trading Summit in Chicago.
Fishback emphasizes that on the issue of tariffs, President Trump should be taken “seriously, but not literally.” What Fishback means by that is that President Trump, like many other Americans, feels that the US has not been well-served by many trade and other international agreements entered into by previous administrations. President Trump wants to use the threat of tariffs to re-negotiate those agreements, at least partly to the US advantage.
But in the end he wants to see prosperity both in the US and around the world. Related, everyone in the US and China is now aware that fragility in supply chains makes it desirable, to some extent, to depend less on imports and more on domestic production. But with the world economy growing robustly, that can happen without raising international tensions.
I have one final point for those, both here in the US and elsewhere, who worry about the uncertainties surrounding the new Trump Administration and its policies. Under the inflation and deficits caused by the Biden Administration’s policies and the international conflicts that have flared up during the Biden presidency, many Americans have suffered economically and financially. But it has not been true that America’s losses have translated into victories for other countries.
To the contrary, weak leadership from the US has devastated Ukraine, Russia, and all corners of the Middle East. Meanwhile, China’s economic growth has been sluggish too. President Trump’s general approach to problem-solving is to look for solutions where everyone wins, instead of thinking in terms of “zero-sum games.” My prediction and my hope is therefore that strong leadership from the Trump Administration will bring peace and economic benefits to the whole world.
Peter Ireland is currently the Murray and Monti Professor of Economics at Boston College. He also serves as a member of the Shadow Open Market Committee and a research associate in the Monetary Economics Program at the National Bureau of Economic Research (NBER)
CREDIT: APD NEWS
