Trump's Treasury Pick: A Clue to His Tariff Strategy

As President-elect Donald Trump begins to form his second administration, the selection of a treasury secretary could provide valuable insights into his plans for tariffs. Two leading candidates, Scott Bessent and Howard Lutnick, have differing views on tariffs, which could shape Trump's trade policy in his new term.

Bessent, a hedge fund manager, views tariffs as a "one time price adjustment" primarily targeting China. He believes that tariffs should be used strategically as a negotiating tool to achieve specific trade objectives. Lutnick, on the other hand, is an advocate for broad tariffs to protect American workers. As the co-chair of Trump's transition operation, he has been instrumental in putting forward candidates for key roles, including the Treasury Department.

Elon Musk, an influential voice during the transition, has endorsed Lutnick, believing that he will "actually enact change." Musk's support for Lutnick could signal a more protectionist trade policy in Trump's second term, with higher tariffs potentially leading to a trade war, angering investors, and increasing prices for consumers.

However, picking one candidate over the other doesn't guarantee that Trump won't take a different path once in the White House, as seen in his first term. The chosen treasury secretary will likely play a crucial role in balancing the goals of funding tax cuts and protecting American workers. Targeted tariffs, using revenue generated to offset the cost of tax cuts, could help achieve this balance while addressing concerns about job displacement due to international competition.

The potential impact of tariffs on the U.S. economy and trade relations is significant. A study by economists Mary Lovely and Kimberly Clausing found that a 60% tariff on China and a separate 20% universal tariff would cost a typical U.S. household $2,600 annually. Higher tariffs could also lead to job creation in the U.S. manufacturing sector, as companies may shift production back to the U.S. to avoid tariffs.



In conclusion, Trump's choice of treasury secretary could provide valuable insights into his plans for tariffs and trade policy in his second term. The differing views of Bessent and Lutnick on tariffs could shape Trump's approach to protecting American workers and funding tax cuts. However, the ultimate impact of tariffs on the U.S. economy and trade relations will depend on the specific policies implemented by the Trump administration. Investors should monitor the situation closely and adapt their strategies accordingly to capitalize on emerging opportunities and mitigate potential risks.