Scott Bessent on Iran Isolation, China De-Risking, and America's Economic Future — NPolicy Summit

[00:00:00] Speaker 1: Thank you very much for coming here this morning. It's very exciting for all of us at Newsmax and for our CEO, Chris Ruddy. So we're going to just get started right away. Mr. Secretary, thank you very much for joining us. One of your jobs, I assume, is to maintain the calm here in the United States, you know, the American people, that they don't panic. How do you do that? [00:00:25] Speaker 2: Yeah, well, we do it through certainty. I think what the president has done, we have great certainty now. We have great certainty on tax policy with the working families tax cuts, also known as the one big beautiful bill. We were able to get that done by 4th of July of the first year of his new term. We've done trade deals, so we have trade certainty. We have energy certainty. It's not any more student body left, student body right. We've just made it clear that we want energy abundance. And thus far, you know, I had hoped that we could create 3 million more barrels a day of domestic crude equivalent during the president's first term. And we're at about 800,000 of crude, depending on how you measure it, another 900 to 1.6 million of nat gas and distillates. So, you know, we are approaching that. And then regulatory certainty. The president told the cabinet, for every new regulation that goes in, 12 must come out. We've had 120 come out for every new one. So, you know, I think that through certainty, through stability, through consistency is how we do it. And also, you know, we like to be fact-based. Right? Because we have lots of data that I'll have people come up to me and say, like, I love to see you sparring with the Democrats up on the Hill. And I said, I don't love it, but the advantage is I have facts, and they don't. [00:02:22] Speaker 1: Two more fun questions. What do you think, and then we're going to go into policy. What do you think would shock Alexander Hamilton most about your job compared to his? And what shocks you about this job when you agreed to be the secretary of treasury that you never dreamed would be part of it? [00:02:40] Speaker 2: Yeah, I think it would be the same thing. So, Steven Mnuchin and I had known each other since we were 17. We were at school together. Steven very kindly sat down with me before I took over, and he said, what is going to surprise you is the amount of national security on the job. And, you know, I came in saying economic security is national security. National security is economic security. But at the time, mostly I meant by that that we have to secure our supply chains because we saw during COVID that optimal supply chains are not necessarily secure and robust. Many of you would have heard me say, we don't want to decouple from China. We need to de-risk. And whether it's semiconductors, medicines, critical minerals, steel, there's a whole variety of things. But the actual national security aspect, Steven had told me he spent about 40% of his time on it. Now with the Iran war, we had a maximum pressure strategy. Now we have economic outcasts where we are isolating the Iranian regime. And some days it takes up 70% or 80% of my day. And I think that's something Alexander Hamilton would have been very proud of but couldn't have imagined. Even, I went down to Houston this spring and had lunch with Jim Baker. And James Baker, I think, is one of the great treasury secretaries, one of the great public servants of my lifetime. And I think even he would be surprised how much national security there was because, you know, to do with treasury. Because in the old days when they did the Plaza Accord, the Louvre Accord, they were dealing, your economic rivals were your allies and then the Soviet Union was a military threat. Now China is both. They are the biggest economic threat and they're the biggest military threat. [00:04:42] Speaker 1: See, I would think, I don't know your job, but I would think also as you lay that out, you know, all the unknowns, all the variables, everything you wake up to in the morning, it could change everything. I mean, even something like Katrina or something like that or some war breaking out in some part of the world, that it would be very hard in some ways to sort of set a path for the economy, for the United States, when there are so many variables that are thrown at you that you cannot anticipate. [00:05:08] Speaker 2: Well, I think to the extent I had a strength in my money management business, it was in risk management. And, Greta, to your point, I always used to tell people, the biggest risk you're taking, the most dangerous risk is when you don't know you're taking. So we are constantly doing scenario analysis, war game analysis. Many of you would have heard me say that I'm a big basketball fan. I was a fan of John Wooten, Dean Smith, and they were just known for their preparation. So we have tons of contingency plans up on the shelf for every, and we're never going to be able to think about everything. But as soon as we learn through very early on about this outbreak in Russia, we don't believe it's anything, but what if it does spread? Well, what would our reaction function be? That on a lot of the tariffs, the President was using IEPA, which is the Emergency Economic Powers Act on tariffs, and people were saying, well, how is it an emergency? And I said, my job is to keep it from becoming an emergency. Like, you want to get ahead of the trade deficit and current account deficit before it becomes an emergency. You don't want to get right under the warning track, or even worse, under the red line. [00:06:38] Speaker 1: Well, I assume you woke to what I woke up to this morning, that yields are rising, stocks are tumbling, oil surge is 5%. [00:06:46] Speaker 2: Yeah, so it's one day. [00:06:49] Speaker 1: One day, so that's how you look at it as one day. [00:06:52] Speaker 2: Yeah, and it's one day, and the other thing, too, is that we look at, A, the composition, why are yields rising? So yields have a real component and an inflation component. The inflation component is quite muted, so it shows that inflation expectations are well anchored. I'd be nervous if those were unanchored. And I had my weekly breakfast with the Fed chair just this morning. The other thing, too, is yields are going up around the world, and we are not seeing a sell-off in U.S. bonds and investors buying German bonds or Japanese bonds. As a matter of fact, the U.S. bond market's been the best-performing market since the president came in office, and yesterday, we had our best treasury auction ever, ever. So if buyers weren't showing up or a buyer strike, and look, you know, you learn that a day doesn't make things. You know, we are, we do look for trends. [00:08:04] Speaker 1: Is there an inflation trend that scares you? Is there a market inflation trend that scares you? [00:08:11] Speaker 2: The inflation trend doesn't scare me because core inflation actually went down last month. Core inflation has come in, has come down since the president came into office. So that the energy shock has not leaked into core inflation makes me very confident. What worries me a little is some of the interpretation by some of the people at the Fed and that they don't want to look through a supply-side energy shock. In the history of central banking, it is acknowledged that one of the worst mistakes was summer of 2008, I think crude prices hit 147 and the ECB hiked. And then we had the GFC, it really take on a life of its own when Lehman went under in September. So that doesn't worry me. It's some people's interpretation of inflation worries me. [00:09:16] Speaker 1: What about the K-shaped economy? You don't believe that we're still in a K-shaped recovery where the people who are lucky go up and the people who are not so lucky go down on that K-shape. [00:09:27] Speaker 2: Well, we've actually, again, back to, I constantly drive people in my office crazy because, you know, they'll say, well, we believe this or we believe that. And I say, okay, no data, no opinion. So what does the data show us? And the data shows us the opposite. The data shows us that actually the bottom two quintiles of working Americans are doing better. And actually the top is rolling down somewhat. And I had Visa, MasterCard, and the largest banks at Treasury within the past three weeks. And they confirmed the same thing, that the low-end consumers doing very well. If anything, the top end is kind of rolling down a bit. But the economy is very strong. [00:10:17] Speaker 1: You know, I hear the economy is very strong. And, you know, I'm lucky. I have a job. I have a good job. But I see those gas prices driving down the street. And they're up a dollar and a half more since February 1st. I realize that Iran started four weeks later. But that's a lot of money, a dollar and a half more per gallon for people. And we're approaching midterms. And people oftentimes measure their votes by the state of the economy. Are you worried? [00:10:44] Speaker 2: Look, I am, I think that the gas price has just become kind of a totem. They have four people. But, again, if I go back to how are consumers behaving versus what are they saying, which in my private business, I just always looked at the data. And there's a revealed preference and a stated preference. And the stated preference is nobody likes higher gas prices. [00:11:12] Speaker 1: Some can't deal with the higher prices, though. [00:11:15] Speaker 2: Well, look, we have the biggest tax refunds in history. We can actually see that wage increases. What really did in working Americans during the Biden administration, headline inflation was 21.5%. Wage increases were 17%. So that was a stated negative 4.5% negative wage growth. But really for working Americans who have a different basket of goods and services, whether it's food, whether it's gas, insurance, used cars, rent went up. And dirty fact that the Democrats on the left do not want to acknowledge rents went up because of mass unfettered immigration and a lack of housing supply. So we are seeing low-end rents come down. And then when C rents come down, B rents come down, and A rents come down. So pharmaceutical prices are down 4%. So gas prices are up. But again, right now, real wages are matching headline inflation. And Americans are breaking even. I would say that wages are going to continue strong. And we will get to the other side of this Iran conflict. I don't know whether it's next week, next month, or in two months. And I think gas prices will be even lower than they were on January 1st. [00:12:42] Speaker 1: This is not a Trump administration problem. This is a Washington province that's been going on for administration after administration. We're $41 trillion in debt. The debt service, which actually scares me more, because I think if you keep borrowing as long as you can pay for it, you know, why not? I say that sarcastically. But we're paying $1.2 to $1.3 trillion a year for debt service. At what point is it going to become a crisis? And how does this impact the average American family? Not those of us in this room, but people across the country, farmers, you know, teachers. [00:13:17] Speaker 2: Yep. So what we have to do is a combination of spending constraint. And we have done that. We actually had a fiscal contraction for calendar year 25 of almost a percent. We didn't get credit for it. But Biden people, trying to get Vice President Harris elected, blew out the deficit in 24, 6.7 percent, 6.7 percent of GDP, highest when we weren't in a war, weren't in a recession. We brought that down to about 5.7. It is up this year because of tariff refunds. If it weren't for tariff refunds, look, we're in a war and interest rates are high. But it would be flat without the tariff refunds. So in that kind of environment, I think flat's pretty good. Russ Vogt, the President, and I are working on a fiscal consolidation plan. I think we're going to unveil that right after the midterms. So, and the President's serious on this. I don't repeat private conversations with the President, but I got permission to repeat this one. The first time I went in to see him, I can't remember whether it was end of 22, end of 23, at his office in Mar-a-Lago, and I said, sir, you're going to win the election, and I'd like to be on the economic team. And he said, great, you'll be my Fed chair. And I said, well, there's a job I want. That's not it. But then his second thing was, Scott, how are we going to get the debt and deficits down without causing a recession? And I think a lot of it's going to have to be through pro-growth policies because the CBO uses a static scoring system 1.7% growth. They had 1.7% growth for this year, whether we'd had the biggest tax hike in history or the biggest tax cut in history. I think we probably grew more than 3% this quarter. I think we can keep doing that. And if we grow at 3%, the curve will start bending then. [00:15:25] Speaker 1: We discussed in the beginning, you said economic policy is national security. We are dependent on China for so many things, especially drugs. The precursor drugs for heart, chemo, you name it, to an enormous percentage of it. And we have an in-and-out relationship with China. We've had President Xi here, and he seems to like us, but we've got disputes over Taiwan. We've got disputes over Iran. They're bypassing our sanctions by buying oil from Iran while we're trying to squeeze Iran. So how worried are you about China and the whole sort of trade with China and the fact that China is in-running us on sanctions? [00:16:07] Speaker 2: Well, look, I manage the U.S.-China trade relations, and there are things that they don't want us to do that we do. There are things we don't want them to do. They have been very quiet. We've been very quiet with them because with China, they just want to be approached with respect and in a quiet way. and they've been pretty good on Iran. You don't worry? [00:16:33] Speaker 1: You don't worry long-term? [00:16:35] Speaker 2: Oh, no, no, no, look, that's why I said we have to de-risk, and we are in the midst of de-risking, that we have an all-out sprint on critical minerals, that we are hoping that we could have a substantial portion. TSMC is building fabs as fast as they can in Arizona to avoid chips. The Taiwan Strait becoming a choke point, and with the APIs, which are the precursor chemicals for our drugs, we are on-shoring those as fast as we can, and the president's using tariff policy to do that, and they're just saying, build your factories here within two years, or you're going to get tariffs to bring them in. And it is, Greta, it's a real problem. Anyone in this room who has children has given them amoxicillin, all the amoxicillin come from China. [00:17:32] Speaker 1: I spoke to a dictator a while back who's been in office since the early 90s, and he was commenting on our system of, and I'm not saying we should have a dictatorship, but he said the problem with the United States is that we have four-year administration. So you can go ahead and do everything you intend to do for these four years, but then someone comes along and can change it, and so we really can't do sort of long-term planning as well as the variable about all the things that could happen in the world. Have you sort of globally thought about how difficult it is even to plan our economic future when we change so often and there's so many variables? [00:18:12] Speaker 2: I think that there are common-sense things that, no matter the policies, that people agree on. We look back at many of the measures that were taken in President Trump's first term on China. The Biden administration did not take off a single China tariff. And they had a policy, I think they called it small garden high wall, and everyone was very united on that the Chinese could not have high-end U.S. semiconductors. So that has been a consistent national security policy all the way through. I think some of the things that I listed for you that any administration is going to continue those. [00:19:04] Speaker 1: I don't want to go to prison, so I don't do my own taxes. The tax code is 74,000 pages, so I don't dare touch it. You, as Secretary of Treasury, oversee the IRS. [00:19:19] Speaker 2: I was actually the acting IRS commissioner for a while. Okay, all right, all right. When you're a little kid in South Carolina, that's your childhood dream. [00:19:26] Speaker 1: Okay, right. I mean, I realize that the code is written by the legislature. Do you foresee any, because the tax code is insane, because nobody understands it. I bet you don't do your own taxes. Okay, all right. None of us. Nobody on Capitol Hill who writes this tax code, a lot of them lie and say they do, but they don't do their own taxes. [00:19:53] Speaker 2: Look, we have added to the tax code through the one big beautiful bill. What we are trying to do is, and I would expect that you would see this over the coming year, is to go through and put in just some more common sense provisions. [00:20:12] Speaker 1: But that's adding more. That's going to make 75,000 pages when you leave, not 74. [00:20:18] Speaker 2: No, no, no, the common sense provisions are taking some things out. [00:20:21] Speaker 1: Okay, taxes on tips, things like that, which is appreciated by many. Yes. Yeah, no, greatly appreciated. But it still remains is that that will help a lot of Americans, and I'm happy for that. But the truth is that that tax code is incomprehensible. [00:20:39] Speaker 2: It can be. It can be. But another exciting thing that the IRS is doing are Trump accounts. [00:20:46] Speaker 1: Let's talk about Trump accounts. What is it Trump? I know about Trump accounts. I had one of your people on yesterday. [00:20:54] Speaker 2: So Trump accounts, people have talked about this for years. I think it originally started out with this idea of baby bonds, and you were going to give American children a bond when they were born, and then it would compound. And President Trump and a group of Michael Dell, Brad Gerstner, Senator Cruz worked on it, decided it would be better to give everyone a share in our great equity markets. So 38 percent, 38 percent of American households have no exposure to the equity market, not even through 401ks, not through a defined benefit plan. And so Trump accounts, we have auto-enrolled all 70 million children in the U.S. this week. All 70 million. So parents now need the trumpaccounts.gov. It is a painless two-minute process. Just go on your phone, click on the app, and you can have your child registered in two minutes. And any child 18 and under has been registered, so go claim their account. But children who are born during President Trump's term, Treasury will put a $1,000 seed investment in there that gets invested into a low-cost S&P tracker. And then we've got our great philanthropist, Susan and Michael Dell, have donated $6.25 billion, and that will be going to 25 million children and $250 per account. And it's not to the top 20 zip codes in America. And we have many other philanthropists who have adopted states. Harold Hamm has adopted Oklahoma. Brad Gerstner, his own state of Indiana. And we're going to see some very large philanthropic donations. Companies can donate up to $2,500, so I think it will become a fringe benefit. But as important as the money, it is going to make us more of an ownership society. When we see these crazy DSA policies, as we bring more people into the system, they're not going to want to bring down the system. They're going to want to understand it. So Treasury, we've created 15 learning modules, many for the parents, because these will be parents who have never owned equities before, and then for the kids, starting at age four, to show them how to do it. [00:23:39] Speaker 1: We have a minute and 11 seconds. I'll get fired if I go beyond it. But, and I'm going to kiss the death on this one. Are the sanctions on Iran squeezing their economy? And can you tell me in the minute we have left the impact of our sanctions on it? [00:23:53] Speaker 2: Yeah, I normally wouldn't tell people to read the New York Times, but two days ago, the New York Times had an article that basically said that the IRGC is now panicking amongst themselves. And that's the key, because what we have done has never been seen before. We have, we had military, now we have the blockade, so nothing is going, coming out or going in. For the first time ever since they started pumping oil, the history of Iran, they will have no oil on the water for sale. And we have isolated them economically. UAE has been a good partner. Oman has been a good partner. We're working with Pakistan and Turkey to cut off all the land routes. We have quarantined them with airline flights, so the IRGC, they can no longer go see their plastic surgeon in London, their girlfriend in Paris, and their money in Geneva. So if they love, if they love the Islamic Republic of Iran, they are stuck there, so they can enjoy it. And I think that it is a real psyop for them to be stuck in place. And we are, we're probably going to seize a billion dollars of crypto this week. And, you know, we know where it is, and we are isolating them. We did have a maximum pressure campaign. Now we have an absolute isolation campaign, and it's working. [00:25:25] Speaker 1: Mr. Secretary, thank you. And he has to slip out of here fast. He has a meeting with the President, so he's going to slip out of here fast. Thank you very much, sir. I hope you come back.