“Sigh of relief” has been the most overused phrase since Donald Trump chose billionaire hedge fund manager Scott Bessent to be Treasury secretary. The theory is that Mr. Bessent will gain respect from the market and lead the incoming administration toward the usual conservative policies of tax cuts and deregulation, and away from anything disruptive.
That sigh continued throughout the day. In a familiar policy declaration via social media posts, the president-elect will impose 25% tariffs on imports from Canada and Mexico and a 10% tariff on China, specifically to deter “invasion.” announced his intentions. This would affect about $1 trillion a year in imports from the United States’ three largest trading partners, generate retaliation, and do little to prevent border crossings that are already curtailed and typically depend on job availability. do not have. Of course, the prices of many goods and services will increase.
But is there really that much of a disconnect between Mr. Bessent’s nomination and the threat of tariffs? Hear how Treasury candidates view the job, how Trump-era tariffs will take on a pre-modern character, and whether proximity to the King could affect one’s economic fate If you know whether to decide, it’s not.
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Some have focused on Bessent’s 3-3-3 plan, which targets 3% GDP growth, a 3% budget deficit and 3 million barrels a day more oil. (The oil industry doesn’t want the latter, arguing that it has already reached production limits. In fact, it doesn’t want to increase production to lower global oil prices.) But Mr. Bessent’s His real purpose appears to be in line with his investment history. It involved betting on geopolitical change and finding opportunity in the chaos and misery of other countries.
He adopted a Trumpian strategy of using threats as the opening salvo of negotiations. This interview, conducted a few months ago, is a great way to get a sense of his perspective. “I think we’ve established a standard. You could call it … green, yellow and red,” Bessent said. “This is how you get into the green box, and this is how you stay in the green box. If you are India, and you want to buy Russian oil that has a 20% tariff and is subject to sanctions, then you are in the yellow box. By the way, if you keep buying that oil, you’ll get closer to the red box.
This idea uses trade barriers such as economic sanctions and security agreements to induce change in other countries. Bessent suggests that countries under the U.S. national security umbrella should buy long-term U.S. Treasuries. Bessent argues that China’s tariffs should encourage the country to change its export-driven strategy and make its economy more reliant on domestic consumption.
This is an arrogant version of the Biden administration’s theory of “friendshoring” to strengthen trade ties with allies, but only under the Bessent-Trump plan does it take on a threatening form. In other words, countries must play ball or be defeated. This actually reveals a continuity between Trump and his predecessor. He believes in American hegemony, and his trade policy is subordinate to geopolitical goals and aligns the world under hegemony. It turns out that workers aren’t really involved in this equation.
Monday night’s announcement will put our largest trading partner in the red box, giving us the option to leave if we stop the flow of migrants and drugs. This has happened before. Tariffs on Mexico proposed in 2019 were scrapped at the last minute after Republican senators threatened to block them. This time, there are far fewer checks on Trump’s power within the Republican Party.
Some may wonder what Canada is doing in this conversation. More than 81% of border crossings in the past five years have been between the U.S. and Mexico. Although Canada’s border crossings increased this summer, with such encounters accounting for at most 3 per cent of total encounters, the number has fallen sharply this fall, with migrants fleeing north for fear of persecution in the United States, among others. There are growing concerns about migration in the opposite direction. Canada is a net exporter of fentanyl, but the main exporter is not the United States, and just this month Canadian authorities seized the country’s largest drug lab. (Most of the precursor chemicals come from China.)
A possible reason for Canada’s participation is the United States-Mexico-Canada Free Trade Agreement (USMCA), a rewrite of NAFTA that President Trump signed during his first term. Although USMCA appears at first glance to negate additional tariffs, a national security exception allows President Trump to use the International Economic Emergency Powers Act to impose additional tariffs during a declared national emergency. There is a possibility that it will become. Clearly, President Trump intends to call the border crisis an emergency and add fuel to this tariff threat, not just for purposes of mass deportation.
USMCA has a review clause set for July 2026, and President Trump has indicated that negotiations will begin sooner. Canada seems to want that too. Officials in the country have criticized Mexico’s deepening economic ties with China. Trade in goods between the two countries has doubled since 2010, and Canada and the United States have warned that China could allow goods such as cars to pass through Mexico under a free trade agreement.
Canada hasn’t gained much from the USMCA (trade with the US is flat), the new US administration wants to pile on tariffs on the USMCA, and Mexico is already talking about retaliatory tariffs. Free trade in North America feels dead. But Mexico’s economy relies on exports to the United States, and Canada is similarly deeply integrated, trading hundreds of billions of dollars worth of fossil fuels, auto parts, timber and more. They want to escape the red box and will offer any concessions if necessary. For example, it could be a superficial announcement to close borders. This is another Trumpian technique: manufacture a crisis, defuse it, and celebrate the averted disaster.
But there’s another part of President Trump’s tariff strategy that involves importers and exporters rather than countries. This will be one of the places where corruption and cronyism will be most prevalent in President Trump’s second term. In fact, it already existed in the beginning. We are talking about customs exemption.
New tariffs, including those on China, are clearly on the horizon, and businesses that rely on imports are having a tough time. Companies that requested exemptions from President Donald Trump’s 2018 tariffs on China because they donated heavily to Republican causes during his first term may be able to avoid taxes, according to researchers at Lehigh University and other institutions. It is said that the price was high. “The tariff exemption granting process functioned as a highly effective spoils system that allowed the regime of the day to reward political friends and punish enemies,” the authors write.
The tariffs on China, implemented under Section 301 of the Trade Act of 1974, had a secret exemption process and no Congressional oversight or appeal ability. It was the perfect conduit for President Trump’s preferred way of doing business: taking tribute from and rewarding supplicants. Other Trump-era tariffs, such as those on steel and aluminum, were implemented with outside oversight and did not show this pattern.
One company applied for 40,000 exemptions. The Bible was protected from tariffs on the theory that it simply could not be manufactured in the United States, somehow ignoring the existence of printing presses since Gutenberg. Larger companies with greater ability to engage in the pay-to-play process received better treatment. Your tariff exemption depended above all on the quality of your lobbyists and the value of your contributions to the Republican Party.
There has already been a flurry of activity from companies looking to position themselves for the new exemption. Corporations donated $425 million to Republicans in the past election cycle, preparing them for this very moment. As Paul Krugman points out, more tariffs mean more opportunities for tariff exemptions, and therefore more opportunities to buy the king’s love. I think it’s clear what’s going to happen when Ken Griffin, among others, publicly states that tariffs can lead to crony capitalism.
But it goes beyond tariffs. Agribusiness companies will lobby to protect low-wage immigrant workers from deportation and seek more funding from a New Deal-era program that provides across-the-board compensation to farmers hurt by trade wars. Defense contractors will lobby to protect their huge profits from new government efficiency oversight. Medical companies will lobby to prevent Robert F. Kennedy Jr. from running “out of control” in a small corner of their division. Big Tech will lobby to defuse the threat of mergers. Television networks and their top personalities will lobby to avoid seizure of licenses and access freezes.
These perks are offered unevenly based on who you are, what part of the country you live in, and how friendly you are with the right people. Washington would be subject to what is known as the Cantillon effect. The closer you are to power, the better success you will have in business. Another way to describe it is oligarchy.
Crony states usually have weaker economies. Bessent considers it purifying. “We’re going to have to have some kind of massive global economic reordering…I want to be a part of that,” he said earlier this year. However, there’s nothing too grand about this. It’s just a forced and lucrative deal.
