Update 827 — Trump Floats Major Tariff Plan;
Bessent is Treasury Pick; DOGE Days Ahead
President-elect Trump has now named all of his Cabinet-level nominees — including his pick for Treasury Secretary — as well as choices for other critical economic policy positions, which we cover below. Not among these are Elon Musk and Vivek Ramaswamy, expected to head a “Department” of Government Efficiency (DOGE) without Senate confirmation as it would be a short-term advisory unit on fiscal policy lacking legislative or regulatory policy authority, also covered.
The week’s big policy news was Trump’s announcement of across-the-board tariffs on imported goods from China (an additional 10 percent duty) as well as Mexico and Canada (an unexpected 25 percent each), walloping our biggest trade partners. Is this a negotiation tactic or the opening salvo in a multi-front trade war? See below.
Happy Thanksgivings, all…
Best,
Dana
Headline
Trump’s First Tariff Targets Announced
On Monday night, President-elect Donald Trump took to Truth Social to announce the United States’ top three trading partners – which are responsible for almost half of U.S. trade – will be the first targets in the rollout of his tariff policy once he returns to office, citing concerns over what he describes as unchecked immigration and drug trafficking stemming from Mexico, Canada, and China.
On day 1 of his Presidency, Trump intends to impose a 25 percent tariff on all goods from Mexico and Canada along with an additional 10 percent tariff increase above any existing tariff rate on goods from China.
This announcement comes after months of Trump’s campaign rhetoric promising a 10-20 percent blanket tariff on all imports and an up to 60 percent tariff rate on Chinese goods. In a combination of his two loudest campaign themes – trade and immigration – Trump threatened that the tariffs will remain “in effect until such time as Drugs, in particular Fentanyl, and all Illegal Aliens stop this Invasion of our Country.”
Over the past week, Trump has filled his cabinet with picks that may have signaled a more measured approach to trade policy. Scott Bessent for Treasury Secretary, Howard Lutnik for Commerce Secretary, and Jamieson Greer as U.S. Trade Representative (USTR) are pivots from the hawkish trade figures of his first term such as former USTR Robert Lightizer, who has yet to be tapped in this administration.
State of U.S. Trade with Targeted Countries
More than $1.3 trillion worth of goods came from the three countries in 2023, according to the U.S. Census Bureau. Mexico, Canada, and China are the nation’s top three suppliers of imported goods, accounting for about 42 percent of imports to the U.S. this year.
- Mexico
- Canada
- The United States imported more than $418 billion in goods from Canada in 2023 and exported $354 billion. Crude oil products like petroleum gas, vehicles, and construction parts are some of the top goods the United States imports from Canada. More than three-quarters of Canadian exports are sent to the United States, underscoring the close trading relationship.
- China
What’s Next?
Looming over these threats by Trump both during his campaign and now as President-elect has remained the question of how seriously to take his policy promises. Some observers regard Trump’s sweeping tariff talk as a tactic to get trading partners to the negotiating table. But talk could have real costs and consequences as businesses scramble to prepare for higher costs. If Trump does implement these tariffs on January 20, as he apparently intends, the higher costs for businesses – economists widely agree – are passed down to consumers and may reaggravate inflation.
These tariff hikes on our North American partners also appear to violate the United States-Mexico-Canada Agreement (USMCA), the free trade agreement negotiated by Trump during his first term. His intentions to ignore his own trade pact may signal he wants to jumpstart renegotiations ahead of the deal’s sunset in 2026.
Retaliation remains a central concern, and in the hours following Trump’s Truth Social posts, leaders of the targeted countries responded. Newly-elected President Claudia Sheinbaum of Mexico quickly threatened measure-for-measure retaliatory tariffs on American goods while cautioning that igniting a trade war would hurt both countries’ economies. Similarly, but without threatening their own tariffs yet, a Chinese representative warned that nobody wins a trade war. A call yesterday between Trump and Canadian Prime Minister Justin Trudeau reportedly addressed the state of U.S.-Canada cooperation on the subject.
Other Developments
Trump Taps Scott Bessent for Treasury Secretary
Scott Bessent, the billionaire Wall Street investor and Trump economic adviser, is President-elect Trump’s pick for Treasury Secretary. If confirmed by the Senate, Bessent’s role will involve working to make Trump’s most dangerous economic proposals a reality.
Trump announced his intention to nominate Bessent last Friday after considering potential candidates for the key economic position over the previous weeks. Bessent is the founder of Key Square Capital Management, a hedge fund that he continues to manage, and previously served as chief investment officer of Soros Fund Management. Bessent also served as one of Trump’s key economic advisors over the past year and has acted as a supportive voice publicly defending Trump’s economic proposals. Bessent has claimed that Trump’s proposals would result in an “economic lollapalooza” despite research suggesting that his plans would in fact raise prices for American families.
If confirmed as Treasury Secretary, Bessent’s priorities would include, among other things, responsibility for two major economic priorities for the incoming administration:
- Pushing through Trump’s tax cuts – Bessent has been supportive of extending tax cuts included in the Tax Cuts and Jobs Act (TCJA), which expires next year, with offsets.
- Enacting Trump’s tariff policies – Bessent is thought to have a more measured approach to trade policy than the President-elect, but Trump’s announcement of proposed tariffs on Monday night (discussed in further detail above) suggests that the incoming administration could nevertheless champion an extreme approach.
Bessent would also advise the administration on fiscal policy and has expressed concern about the burden of the U.S. debt. He has proposed reducing spending, including by freezing nondefense discretionary spending and adjusting subsidies for electric vehicles included in the Inflation Reduction Act.
Bessent has been a proponent of Trump pursuing a so-called “3-3-3” approach, based on former Japanese Prime Minister Shinzo Abe’s economic approach. This would involve cutting the budget deficit to 3 percent by 2028, achieving GDP growth of 3 percent, and producing an additional 3 million barrels of oil per day.
In the role, Bessent would also be responsible for enforcing sanctions and conducting economic diplomacy abroad. Bessent has stressed the importance of maintaining the global dominance of the U.S. dollar. He has also reportedly discussed wanting to participate in “grand global reordering” and argued that tariffs could be used similarly to economic sanctions to achieve America’s international goals.
Trump Names Additional Key Nominations
Nominations for major positions have continued to be announced by the Trump transition team over the past two weeks. These include several nominees who will have major influence over economic policy during the next administration if confirmed.
- Secretary of Labor, Lori Chavez-DeRemer – Last Friday, Trump announced that he would nominate Representative Lori Chavez-DeRemer (R-OR) who lost her Congressional election earlier this month, to serve as Labor Secretary.
- Secretary of Housing and Urban Development, Scott Turner – Last Friday, Trump announced that he would nominate Scott Turner, who worked on opportunity zones during Trump’s first term, to serve as Secretary of the Department of Housing and Urban Development.
- United States Trade Representative, Jamieson Greer – On Tuesday, Trump announced his nomination of Jamieson Greer to USTR. Greer served as Chief of Staff to former USTR Robert Lighthizer and has now been tapped to spearhead Trump’s trade and tariff policies.
- Director of the National Economic Council (NEC), Kevin Hassett – Yesterday, Trump nominated Kevin Hassett to lead the White House’s National Economic Council. Hassett, who served in the Trump administration from 2017 to 2019 as Chair of the Council of Economic Advisers (CEA), helped Trump enact his tax and tariff agendas during his first term.
- Attorney General, Pam Bondi – Last Thursday, following the withdrawal of Trump’s first Attorney General nominee Matt Gaetz from consideration, Trump announced that he would nominate lobbyist and former Florida Attorney General Pam Bondi to the position. The Attorney General oversees antitrust policy at the Department of Justice.
Fed’s Preferred Inflation Gauge Ticks Up in October
The Federal Reserve’s preferred measure of inflation, the personal consumption expenditures (PCE) price index, rose 2.3 percent on an annualized basis in October, in line with expectations. This is slightly up from the 2.1 percent annualized increase in prices in September and on par with the 2.3 percent annualized increase in prices in August. This is according to the October PCE report released by the Bureau of Economic Analysis this morning.
Core PCE – which strips out food and energy prices – rose by 2.8 percent on a year-on-year basis last month, slightly up from the 2.7 percent year-on-year increases in core PCE during each of the prior three months.
Source: Council of Economic Advisers
Headline PCE rose by 0.2 percent on a monthly basis in October, on par with the 0.2 percent increase in prices on a monthly basis in September. Core PCE, meanwhile, rose on a monthly basis by 0.3 percent, also on par with the 0.3 percent increase in September.
The overall 0.2 percent increase in prices last month came as prices of goods fell by 0.1 percent and prices of services rose by 0.4 percent. Food prices rose by less than 0.1 percent on a monthly basis in October, while energy prices fell by 0.1 percent on a monthly basis.
The new data shows that inflation has slowed significantly since mid-2022, but remains sticky above the Federal Reserve’s target of two percent. The Fed’s rate-setting committee, the Federal Open Market Committee (FOMC), will consider the October inflation data as it decides whether to cut interest rates once again next month, but this is but one data point that Committee officials will consider in their data-dependent approach. The FOMC will meet next on December 17 and 18.
U.S. Economy Grows by 2.8% in Third Quarter
The United States economy grew by a healthy 2.8 percent on an annualized basis in the third quarter of 2024 according to the second estimate released by the Bureau of Economic Analysis (BEA) this morning. This rate of growth is on par with third quarter GDP growth estimated in the BEA’s advanced estimate released late last month. The second estimate of GDP for the third quarter is based on more complete data.
The strong GDP growth comes after the American economy grew by 3.0 percent on an annualized basis in the second quarter of 2024. The third and final estimate of GDP for the third quarter, based on more complete data, will be released on December 19.
Spotlight
DOGE: Trump’s Plan to Cripple Government Spending
In the weeks since securing the presidency for a second time, Donald Trump has been fast at work positioning allies and supporters in government where they can help enact his second-term agenda. In one of the most notable “appointments,” Trump quickly announced Elon Musk (key supporter and Tesla/SpaceX CEO) and Vivek Ramaswamy (former primary candidate for Republican presidential nominee) as co-leads of a newly created Department of Government Efficiency, otherwise known as DOGE. Trump is looking to DOGE to deliver by July 4, 2026 a path for spending cuts and, perhaps, seeking to implement its recommendations by circumventing the Congressional budget-making process.
This announcement has raised concerns and has been widely covered by the media in the past few weeks primarily due to one key fact: DOGE is not an official government department. It is merely an advisory creation of Trump and his transition team. Creating a new agency with substantive authority would require approval by Congress. Even so, Musk announced a search for “super high-IQ small-government revolutionaries willing to work 80+ hours per week on unglamorous cost-cutting” on X two weeks ago, in addition to stating that the positions would be unpaid.
Despite lacking official authority, the DOGE co-leaders have already begun work toward their directive to “dismantle Government Bureaucracy, slash excess regulations, cut wasteful expenditures, and restructure Federal Agencies.” An opinion piece published in the Wall Street Journal last week and co-authored by Musk and Ramaswamy laid out the initial pieces of their agenda under the title “The DOGE Plan to Reform Government.” The plans, a few of which are presented below, would be achieved through executive action as opposed to Congressional legislation according to the op-ed:
- Roll back federal rules and regulations based on legal precedent Musk and Ramaswamy believe was set in West Virginia v. the Environmental Protection Agency (2022) and Loper Bright v. Raimondo (2024), the latter of which overturned the long-standing Chevron doctrine, taking some regulatory authority away from federal agencies and giving it to the courts.
- Cut the federal workforce to “the minimum number of employees required at an agency for it to perform its constitutionally permissible and statutorily mandated functions” (Musk and Ramaswamy argue there will be fewer workers needed after regulations are rolled back). Trump has signaled his intentions to cut the federal workforce – which currently stands at 2.3 million employees – by as much as half, but the DOGE co-leaders stated cuts would be made in proportion to regulation rollbacks. This effort will be potentially aided by a mandated return to in-person work and the relocation of agencies, which Musk expects will motivate staff to leave on their own accord.
- Cut government spending through unilateral executive action by as much as $2 trillion, a figure cited by Musk and Ramaswamy, the two point to impoundment (i.e. an action by a federal employee – presumably Trump, in this case – that prevents funding Congress appropriates from being spent) as one possible way of accomplishing this. Impoundment was deemed unconstitutional in Train v. The City of New York (1975) and regulated through the Impoundment Control Act of 1974 (ICA). But Musk and Ramaswamy state that the Supreme Court would be likely to overturn precedent for this attempt to circumvent Congress’ “power of the purse” given its current balance of power, though it is far from a given. DOGE will also take a look at funding that has been appropriated without authorization, which notably includes funding for NASA that eventually flows to Musk’s Company, SpaceX.
DOGE in Congress
Despite the aforementioned unofficial status of DOGE and Musk and Ramawamy’s focus on executive action in their WSJ op-ed, lawmakers have already shown a willingness to work with the “department” to influence and operationalize its recommendations. In the House, Representative Marjorie Taylor Greene (R-GA) has been tapped to lead a new DOGE subcommittee under the House Committee on Oversight and Accountability. In the Senate, Joni Ernst (R-IA) will lead a newly created DOGE caucus, which could also serve as an avenue to consider DOGE recommendations and turn them into actionable legislation. Ernst herself sent a letter to Musk and Ramaswamy on Monday identifying over a trillion dollars in potential savings and spending cuts, offering an early sign of cooperation between the efficiency department and the legislative branch of government.
Support for and collaboration with DOGE may also extend across the aisle, depending on the specific focus of recommendations. House Democrat Ro Khanna (D-CA), a member of the House Armed Services Committee, stated that Democratic committee members may be willing to work with DOGE to identify and cut “waste, fraud, and abuse” in defense spending. Still, House Democrats would be unlikely to support cuts in other areas.
While it is too early to predict how and to what extent Musk and Ramaswamy’s recommendations will translate to executive action or even legislation, it is clear that Trump’s latest pet project, DOGE, is being offered at least some degree of legitimacy in Washington. Bipartisan cooperation on addressing the poor fiscal state of our nation should be welcomed, but the indicated willingness of those involved with DOGE, including President-elect Trump, to circumvent Congress’ power of the purse and treat our government institutions as businesses present a real danger to our Democracy. When coupled with the likely-partisan nature of spending cuts, DOGE has the potential to not only cripple our institutions but to alienate the American people by revoking important investments on which they rely.
Look Ahead
Wednesday, December 4
- House Financial Services Committee hearing: Innovation Revolution: How Technology is Shaping the Future of Finance
Friday, December 6
- November jobs report