US Treasury Chief: Tariffs, Trade Imbalance, and the Fed's Future

US Treasury Secretary: Tariffs as a 'Melting Ice Cube'

In an exclusive interview with Nikkei, US Treasury Secretary Bessent stated that tariffs imposed by the United States on other countries could be reduced if trade imbalances improve. Bessent described these tariffs as “a melting ice cube,” suggesting the possibility of their reduction or even elimination in the future. These remarks come as the Trump administration has implemented new tariff rates, such as increasing duties on imported Japanese goods from 10% to 15%. According to a Yale University estimate, the average US tariff rate has reached 18.6%, the highest level since the end of World War II. Bessent explained that the primary goal of these tariffs is to “rebalance” the current account deficit, which amounted to $1.18 trillion in 2024, the largest among all major countries. He noted that such a deficit could lead to a financial crisis.

Conditions for Reducing Tariffs

Bessent clarified that one of the key conditions for reducing tariffs is the return of production to the United States, which would reduce imports and achieve trade balance. He touched on ongoing trade negotiations with countries that have not yet reached agreements, expressing hope to complete these negotiations by the end of October. Additionally, the Trump administration is using tariffs to pressure Russia regarding the conflict in Ukraine, including the threat of imposing an additional 25% duty on India if it continues to purchase Russian oil, bringing the total duty to 50%.

Tariffs as a Diplomatic Tool

Bessent emphasized that the tariff policy is a way to increase revenue and protect American industry, as well as use it as a tool for diplomatic negotiation. He pointed to the trade agreement with Japan, under which Tokyo accepted a 15% tariff and pledged to provide an investment and loan package worth $550 billion. Bessent described this agreement as a “golden industrial partnership,” expressing hope to achieve trade balance with Japan over time.

Successor to the Federal Reserve Chair

In a related context, Bessent touched on the selection of a successor to the current Federal Reserve Chairman, Jerome Powell, whose term expires next May. He noted that President Trump has already begun the selection process, and Bessent is expected to lead this process. He explained that the next Fed chair must have the trust of the markets, be able to analyze complex economic data, manage the twelve votes in the central bank, and build consensus. He also emphasized the importance of the next chair having a future vision and not relying solely on historical data.

Maintaining the Independence of the Federal Reserve

Bessent expressed concern about the erosion of monetary policy independence, emphasizing the importance of the central bank's independence to achieve economic stability and influence inflation expectations. He noted that the multiple tasks performed by the Federal Reserve may jeopardize its independence. Despite Trump's recent criticism of Powell, Bessent stressed that the Federal Reserve is an independent institution.

Strong Dollar Policy

Regarding the dollar, Bessent clarified that a strong dollar policy does not only mean a high exchange rate, but also means adopting sound economic policies that maintain the dollar's position as a global reserve currency. He pointed to the need to improve the investment environment to attract more foreign direct investment to the United States.