America’s next top (economic) diplomat

When Donald Trump tapped Wall Street veteran Scott Bessent as his next treasury secretary on Friday, investors had a full weekend to speculate: how would the market react to news of America’s next top (economic) diplomat?

💿*Record scratch*💿

Yep, we said diplomat. Sure, Marco Rubio is set to take the helm at Foggy Bottom where he’ll headline forums, shake hands, and pose for those obligatory foreign ministry photos. But the US treasury secretary also plays a critical role in US diplomacy these days. Why? Because money talks. Just look at…

• Steven Mnuchin, who was treasury secretary under Trump 1.0, and manoeuvred his Office of Foreign Assets Control (OFAC) to implement sanctions against Iran, North Korea, and Venezuela, while shaping tariffs on Chinese goods.
• Or Biden’s own Janet Yellen, who’shelped drive the G7 price cap on Russian oil and has visited China as many times as the secretary of state, while endearing herself (via culinary choices) to hundreds of millions of China’s netizens.
• And let’s not forget Obama’s Timothy Geithner,who not only worked with the G20 to stabilise markets, but (back as a mid-ranked treasury official) apparently kinda coined the G20 itself over a phone call with his German counterpart.
• Oh, and if you really want a good throwback, Alexander Hamilton famously deployed tariffs on British goods (apparently there’s a musical about this?)

So how did markets react to Bessent as treasury secretary under Trump 2.0?

Come Monday morning, they were relieved. Why? First, he’s a known and respected quantity in international investor circles, after years working for famed billionaire philanthropist and Democratic Party megadonor, George Soros.

But second, he’s also been a relatively moderate voice for Trump’s ideas, and you can see that in the way his announcement soon spurred a rally in currencies around the world.

Why? Take tariffs — Bessent agrees with Trump that they’re a “useful tool”, but he’s been more nuanced on how and when to use them, arguing they should be “layered in” gradually, and even that the “tariff gun will always be loaded and on the table but rarely discharged.” So currencies rallied on hopes Trump 2.0 won’t be so disruptive after all.

But then… what about Trump’s announcement just hours ago that he’ll slap Canada, Mexico and China with extra tariffs? Bessent hasn’t commented specifically, but he’s previously described similar Trump threats as merely a “maximalist negotiating position.”

So what else can we infer about Bessent’s approach to the world?

First, he is (like much of Trump’s new cabinet) a China hawk, describing Beijing as despotic, a military threat, and as milking decades of US conciliation to build vast economic imbalances that have left the US more vulnerable both at home (a hollowed-out industrial base) and abroad (more dependent on China for all kinds of key inputs).

But second, he’s argued that, even though pushing China to rebalance at home could take a decade or more (eg, more household consumption, less currency manipulation), that wouldn’t be enough to re-balance the broader international economy (the US has continued to hit record trade deficits notwithstanding years of tariffs).

So what does Bessent propose? At home, he’s pitching a stronger US, via a ‘3-3-3’ policy:

• Trim US deficits back to 3% of GDP (to stabilise US finances)
• Use business-friendly moves to lift US growth to 3% (and stabilise finances), and
• Add 3 million daily barrels to US oil output (to help the two 3s above).

And abroad, Bessent has talked about more closely linking all the tools of US power (the US military, market, and dollar) to project a more activist US to the world, all to fix (rather than abandon) the way the world trades.

Or to put it another way, he’s described it all as a strategy of “escalate to de-escalate”.

INTRIGUE’S TAKE

If this all seems kind of a big deal, that’s because… it is. Back in June, Bessent told an audience that we’re all headed towards “some kind of a grand global economic reordering” whether we like it or not. So he wants the US to shape what comes next.

And yes, while he’s forecasting (and promising) some pretty big shifts in the way the US approaches the world, he’s also promising that this re-ordering will still be orderly: “adjustments are needed, but they must be carefully calibrated and deliberately paced.”

We once heard a diplomat describe that kind of thinking as radical incrementalism. But you could also argue it’s relatively bipartisan: the last two administrations (Biden and Trump 1.0) were also reacting to a shared sense that some of America’s assumptions around China specifically (and globalisation broadly) were ill-founded.

So then, the big question is how much of all this Bessent can really pull off. And a bipartisan report has estimated Trump’s plans could expand (rather than stabilise) US debt, which is just one way Bessent’s ‘3-3-3’ strategy might soon hit turbulence.

Also worth noting: 

• Bessent has said Trump will appoint a new Federal Reserve chair when Jerome Powell’s term ends in 2026, though Trump wouldn’t interfere in the Fed’s independence.
• Bessent’s rival for the treasury job (fellow Wall St billionaire Howard Lutnick) got tapped to serve as commerce secretary instead.