In his first major economic policy speech as US Treasury Secretary, Scott Bessent outlined what he saw as the Trump administration’s plan to free the American economy from “dependence on the state” and steer it towards “private sector-led growth.”

Speaking at the Economic Club of New York last March, Bessent, a former Soros Fund manager, made it clear that President Donald Trump intended to pursue deregulation, implement permanent tax cuts, and use tariffs as a strategic tool to strengthen American industry.

With this shift, Scott Bessent aimed to reverse what he described as the previous administration’s “overreach.”

According to Bessent, previous governments pursued an overly “statist” economic policy, which hindered innovation and productivity. Therefore, and predictably, state intervention in the economy needed to be reduced.

Pointing to data showing that over 95% of job growth last year was concentrated in the public and government-adjacent sectors, Scott Bessent argued that these sectors offered slower wage growth and lower productivity compared to private sector jobs.

From ‘bureaucracy’ to ‘risk-based’ regulation

Bessent claimed:

“The American economy has been artificially propped up by government spending and public sector job growth. We are focused on returning to a private sector-led economy where businesses drive job creation, investment, and innovation.”

To facilitate this transition, the administration planned to suspend the Corporate Transparency Act, which Bessent claimed imposed unnecessary reporting burdens on small businesses.

Bessent also reiterated Trump’s commitment to permanent tax cuts, reduced corporate tax rates, and expanded small business deductions to encourage investment and entrepreneurship.

The Secretary also announced that they would make a “comprehensive and ambitious effort” to liberalize the financial sector to enable banks to play a more active role in driving economic growth.

The administration was particularly focused on overhauling how financial institutions are supervised, aiming to move from what Bessent described as a “bureaucratic checkbox” approach to a more “risk-based” regulatory approach.

According to the Treasury Secretary, tariffs have three goals

The core of the speech was Scott Bessent’s defense of an aggressive trade policy, stating that tariffs were not just about protectionism but about creating a “more competitive and resilient US economy.”

Dismissing concerns about potential inflationary effects, the Secretary argued that tariffs served three main purposes: generating revenue, protecting American industries and workers from unfair practices, and serving as a strong negotiating tool in trade talks.

“As President Trump has said many times, ‘Tariff is my favorite word’,” Bessent said. “If trade partners retaliate, they will face even higher taxes. But if they want to negotiate, we are happy to talk.”

Bessent also dismissed criticism of this policy, emphasizing that Trump’s trade policies were designed to re-establish the US’s economic power on the global stage.

From ‘Lehman moment’ to ‘let the markets sort it out’

Addressing investor concerns, Bessent also made it clear that the administration had no intention of intervening in the stock market to prevent declines. This position indicated that the American government was not considering a “Lehman moment” as in the 2008-9 crisis, but rather relying on the “markets will sort it out” logic.

Indeed, Bessent, referring to the Trump administration’s focus on bond yields rather than stock prices as an indicator of “economic health,” simply stated, “Trump’s upward call is simple: if we have good policies, then the markets will rise.”

Bessent also suggested that Trump’s economic policies, particularly the “re-privatization” of the economy, would contribute to lower interest rates and increased long-term market confidence.

One of the goals the Trump administration set for itself was to convince investors that market-determined interest rates should fall. High-level members of the American economic administration particularly want to lower the yield on ten-year Treasury bonds.

Bessent argued that the Trump administration could lower yields by reducing energy prices and easing regulations. The Secretary also downplayed the sell-off in US Treasury bonds after the tariff shock, saying it was not a “systemic problem.”

“There’s one of these deleveraging tremors going on in the markets right now,” Bessent said, adding that he had witnessed them frequently in his decades-long hedge fund career: “There are very large leveraged players who are experiencing losses in this fixed income market and are being forced to deleverage.”

The obstacle to the American Dream: Workers’ access to cheap goods…

“Access to cheap goods is not the essence of the American Dream. The American Dream is based on the concept that every citizen can achieve prosperity, upward mobility, and economic security. For too long, the designers of multilateral trade agreements have overlooked this.”

The natural consequence of this claim would be to push the “fight against inflation” program to the back burner. This is indeed the case: Bessent indicated this in his speech at the Economic Club of New York, saying, “On a continuum, I am not worried about inflation.”

“Wall Street has done great things, Wall Street can continue to do good things. But this administration is about Main Street.” These words of Bessent are a goal that Trump also frequently expresses: “Main Street” means focusing on production, shopkeepers, stores, and retail sales. Bessent repeats this “polish” of Trump’s as it is.

Time for an economic ‘detox’: The rebalancing account

When tariffs were first announced in March, Trump was asked if there was a risk of recession, and the President acknowledged in response that there would be a “transition period” in his policies.

Speaking after Trump, Scott Bessent suggested in an interview with CNBC that the bottom 50% of American workers were “dead,” and that the top 10%’s share of consumption was close to 40%, 50%, and spoke of ending this imbalance:

“Look, there will be a natural adjustment as we transition from public spending to private spending. The market and the economy have become hooked, and we have become dependent on this government spending, and there will be a period of detox. There will be a period of detox.

(…)

Look, there is an adjustment. We’ll see if it’s painful. What we’re trying to do, I talked about this yesterday at the Economic Club of New York. We’re trying to move from the public sector to the private sector. I talked about how we will have safe and sound regulations to get our banking system working again. So banks should lend to private companies. Employment should come from private companies, not the government. I’m confident that if we implement the right policies, it will be a very smooth transition.”

Scott Bessent always emphasizes that this is an “adjustment process.” Referring to Ronald Reagan and Jimmy Carter, he acknowledges that there were some turbulences during that period (which we will address in the next part of the series), but he emphasizes that these presidents “stayed the course,” and that they too will stand by the course they are following.

Bessent told the CNBC host that “this unsustainable system has been built for years,” adding that the previous “unsustainable system” of trade was also responsible for today’s economic uncertainties:

“Our trade partners have taken advantage of us. We can see this in large budget surpluses. We can also see this in large budget deficits.”

An elegy for globalization?

In an article published in The Economist in October, Scott Bessent stated that globalization had triggered rising inequality in the US, leading to growing social and economic disparities.

“Western middle- and working-class populations are becoming increasingly wary of globalization,” wrote the financial executive who would later become Treasury Secretary, “The only way to preserve the benefits of the international trading system is to question some of the system’s flawed assumptions and update it for the current situation.”

Starting the same article, Bessent’s call for strong links between international economics and trade policies and security will not be surprising to those who read the first part of the series. This idea, that national security and the economy and trade are inseparable, is not unique to this period; in the “neoliberal” era, American national security was also tied to the international economic system. People like Stephen Miran and Bessent want to emphasize this more strongly, highlighting that the old configuration no longer works in favor of American national security. Bessent writes:

“The United States must play a more active role in reshaping the international economic order. Abandoning the international trading system entirely would be a disaster for the American people and our allies. However, the current situation creates security vulnerabilities, and the total economic benefits for the United States are uncertain. America’s next generation of international economic policy must more closely link security relationships and economic relationships to deliver the benefits that truly free trade can bring. Adjustments are needed, but they must be carefully calibrated and consciously accelerated.”

Because of globalization: 1) China has risen, 2) the structure of the American economy has been disrupted, changing the balance of power with US adversaries. These are Bessent’s theses. While international economic integration, open markets, and globalization helped curb inflation by significantly increasing the short-term efficiency of the global economy and reducing the cost of goods, the effects of trade liberalization on “distribution” were ignored, and inequality in America worsened.

The adjustment process largely did not happen, leading to persistent imbalances in the global economy. “The desired balance,” Bessent wrote, “has been hindered by the deliberate policy choices of foreign governments, particularly China, but also Japan, South Korea, and other export-dependent economies.”

Seeking an update to the international trade and security system

As we mentioned above, Scott Bessent advocates for reorganizing, not abandoning, the international trade system.

According to him, despite its many flaws, abandoning the international trade system would be a major economic and strategic mistake. Instead, the US will adopt policies aimed at correcting the sources of “imbalances” in the international economy.

Needless to say, these measures must, of course, “act on a global basis,” as bilateral actions largely circumvent the underlying source of imbalances rather than addressing them.

Bessent therefore finds the discussions about “industrial policies,” which are a hallmark of the Joe Biden era, misplaced, seeing them, of course, as “statist,” and writes:

“Macroeconomic interventions, such as broad-based tariffs, will be more effective than microeconomic interventions, such as industrial policy, which often rely on the government picking winners and losers.”

The US should also intervene with its allies in this direction: moves that will close the American current account deficit. America’s security guarantees and market access should also be linked to allies’ commitments to spend more on “common security” and structure their economies in a way that reduces imbalances over time; this is Bessent’s proposal:

“Such a linked system of security and economic alliances must be dynamic to incentivize behavior consistent with American interests. Countries can move closer to or further from the center of this system of relationships based on the choices they make.

A clearer compartmentalization of the international economy will provide more effective leverage to confront the underlying sources of imbalances than the currently dominant bilateral approach. Furthermore, the cost of remaining outside the periphery will be high. Without access to US markets, China’s excess capacity will threaten the viability of domestic production in other countries. Moreover, it is unlikely that hegemons outside the US-led region will be as benevolent as the US was in the post-war period.”