At a Glance

  • U.S. Treasury Secretary Scott Bessent on Thursday pushed back against concerns that the Trump administration's tariffs will fuel inflation, saying import duties will remove barriers to U.S. exports, increase federal revenue, and fund tax cuts for "Main Street."
  • "Overall, I am not worried about inflation," Bessent said, asserting that tariffs will bring about a "one-time price adjustment."
  • Referring to the Federal Reserve, Bessent said: "I hope the failed 'Team Transitory' can reassemble and recognize that if tariffs are a one-time price adjustment, then nothing is more transitory than tariffs." In 2021, Fed officials described rising price pressures as transitory and kept the main interest rate unchanged, only for inflation to surge in 2022.

In-Depth Analysis

In recent weeks, tariffs set by U.S. President Donald Trump have raised concerns among economists, who believe prices for businesses and consumers will rise in the coming weeks, reigniting inflation, pushing up unemployment, and slowing economic growth.

According to research by the Boston Fed, the 25% tariffs on Canadian and Mexican products, plus an additional 10% tariff on Chinese goods, could push the Personal Consumption Expenditures (PCE) price index, which excludes volatile food and energy prices, up by 0.5 to 0.8 percentage points. The so-called core PCE is the Fed's preferred inflation measure.

"There are no winners in a trade war," Paul Gruenwald, chief global economist at S&P Global Ratings, said in a statement on Thursday. "U.S.-triggered tariffs and retaliatory tariffs from trading partners will lead to a broad slowdown in GDP growth, higher unemployment, and higher inflation," he said.

The Trump administration said on Thursday it will suspend until April 2 the 25% tariffs on goods covered by the U.S.-Mexico-Canada Agreement (USMCA), which was negotiated during Trump's first term. The administration did not announce any changes to the 20% tariff on Chinese imports.

Bessent, answering questions after a speech at the Economic Club of New York, highlighted the increase in federal revenue from import tariffs.

"Currently, we are receiving considerable tariff revenue from China, which was left by President Biden," he said, adding that revenue from new import tariffs "could be very substantial."

Bessent dismissed the view that tariffs would disproportionately harm low-income households.

Bessent said the Trump administration could use tariff revenue to offset the losses from eliminating taxes such as taxes on tips, Social Security benefits, and overtime pay, which Trump promised during his second-term campaign.

Such tax cuts would "all benefit the bottom 50% of wage earners and American workers," Bessent said, adding: "I think that would be fantastic."

Bessent also said that while using tariffs to achieve "reciprocity" with trading partners, the Trump administration is also committed to lowering the yield on the 10-year U.S. Treasury note, which serves as a benchmark for various types of borrowing.

"You will notice that he has stopped calling for the Fed to cut interest rates," Bessent said, referring to Trump. "We want to focus on the 10-year Treasury and think about what we as a government can do to lower it."