Bessent Defends Shifting Tariff Threats, Hitting Allies First

Bessent was appearing in front of the Senate Finance Committee on June 12.

The editorial said that the administration would be wise to partner with Japan and others to develop an alternative supply for processed rare earth minerals and the magnets made from them, given that "China is keeping the gun on the bargaining table by putting a six-month limit on export licenses. That means if trade tensions flare again, Mr. Xi [Jinping] can resort to the same threat."

The writers said, "This gets to the larger problem with Mr. Trump’s tariff strategy -- that is, he doesn’t have one. His latest walk-back shows he can’t bully China as he tried to do in his first term. China has leverage of its own.

"A smarter trade strategy would be to work with allies as a united front to counter China’s predatory trade practices. Instead, Mr. Trump has used tariffs as an economic scatter-gun against friends as well as foes. This increases China’s leverage, and, like this week’s trade truce, that’s nothing to cheer about."

Young said he agreed with the WSJ that it would be a smarter trade strategy to create a united front with allies, and said of China, "They have a measure of leverage."

He said if that tack is not taken, other countries will gain market share in China, China will continue to export subsidized overcapacity in some sectors, driving down prices, and "they will make dependency on their economy hard to reverse."

"If you don’t adopt that certain strategy," Young argued, "You just end up increasing input costs for manufacturers in the near term, and behavior doesn't really change."

Bessent replied, "Our allies have also taken advantage of us. I would say the EU has been very intractable in negotiations."

He said he was speaking with a EU official, who complained that the reciprocal tariffs are terrible. He said he replied, "Really, then why do you have a 10% tax on cars?"

He complained that Canada is about to enact a digital service tariff that will hit U.S. firms. So, he said, first the U.S. has to achieve fair trade with these allies, "and then we can worry about China."

Young said that would be good, to pivot to China, but still issued a caution that pushing too hard could lead to less willingness for foreign firms to expand in the U.S.

He praised the president for procuring "substantial concessions" through his tariff push. "Pocket those, maybe ask for a little bit more … and then go after the big guy on the block." He added, "We also want to make sure as we ask for concessions from our friends, we don’t alienate them."

Sen. Peter Welch, D-Vt., didn't point to the WSJ, but complained that with 22 different tariff announcements, small businesses can't plan. "It looks like the president wakes up, kind of checks his mood, changes the tariff regime," he said, and asked how can a business manage when they have imported goods on the water, which, if the goods arrive on Monday, "they’re cool, if they arrive on Wednesday it’s going to cost them another $75,000?"

Bessent replied, "It’s called strategic uncertainty, and it’s also called negotiations." He said the EU wasn't negotiating in good faith, but after Trump threatened to take promised 20% reciprocal tariffs to 50%, within 10 hours, the head of the EU and five European country leaders called.

"You may call this a flip-flop, I call this a negotiating strategy."

Speaking of strategic uncertainty, after the hearing, a reporter asked Bessent if the 90-day pause on higher tariffs on Chinese goods expires on Aug. 12; Bessent replied, "We'll see."

Sen. Maria Cantwell, D-Wash., a longtime free-trade advocate, had a staffer hold up a poster with the WSJ headline, and asked, "Do you believe in a rules-based trade regime?"

Bessent rejected the World Trade Organization, and said the system has failed American workers.

"For too long we have adhered to a system that doesn’t work," he said.

Cantwell seemed a little taken aback by his clear rejection, and said she thinks a rules-based system is the way that U.S. businesses win. "If it’s not rules-based, then it becomes more ad hoc in the process, and that’s why I think it’s troubling and hard to follow," she said.

Numerous Democrats pressed Bessent on whether tariff revenue is designed to cover the cost of extending tax cuts and expanding tax cuts in the One Big Beautiful Bill. The Congressional Budget Office estimated that increased revenue from tariffs over the next 10 years, if it stayed the same as when they did the analysis, would basically make up for the reduced income tax revenue.

Bessent said, "Part of the intention with the tariffs was always to increase revenues," but said the revenue increase in tariffs is just happening at the same time, it wasn't done intentionally to balance out the other tax changes. (He also said tariffs are not taxes.)

Finance Committee Chairman Mike Crapo, R-Idaho, speaking at the end of the hearing, agreed that those who are concerned that OBBB adds to deficits "ought to be looking at the combined activity of the president and Congress."

After the hearing, he said that comment should not be taken as wanting tariff revenue, after deals are inked, to stay at the same level that it is with 10% additional tariffs on the vast majority of imports, 30% additional tariffs on Chinese goods, and 25% tariffs on aluminum, steel, and cars. (The hike in metals tariffs came after the analysis.)

He said that does not reflect his position "on what I think the tariffs should be." He also argued that the CBO was too pessimistic in its annual growth projections, and that a 3% annual growth is a fairer benchmark, given the tax changes' influence on business decisions.