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The author is a senior fellow on the German Council on Overseas Relations
US president-elect Donald Trump has picked Scott Bessent to be his Treasury secretary. Having labored with him when he was chief funding officer of Soros Fund Administration, I consider he might play a task much like the one which James Baker performed for Ronald Reagan within the Eighties, engineering a world deal to realign the world’s main currencies and obtain some stage of fiscal adjustment.
Bessent has at all times been an acute observer of the world economic system and the workings of the worldwide monetary and financial methods. He ran George Soros’s workplace in Europe on the time of the 1992 sterling disaster; he understood earlier than most how the unconventional adjustments applied by Shinzo Abe would reflate the Japanese economic system regardless of the headwinds of secular stagnation in 2012; and he grasped higher than Soros himself why the interconnectedness of the US and Chinese language economies would pressure a tacit “Shanghai accord” to avert a monetary crash in China in 2015.
Coverage and political regime adjustments within the world macroeconomic setting, alternate charge misalignment and imbalances are amongst Bessent’s central preoccupations. Whereas Bessent formally stands behind the Maga financial coverage agenda, he definitely understands how disruptive it might be not solely to the US and the worldwide function of the greenback, but additionally to the world economic system.
A really aggressive commerce coverage in direction of China in addition to in direction of the US’s allies won’t obtain the mandatory rebalancing on the planet economic system however might ultimately result in a brand new grand discount — a technique Bessent has described as “escalate to de-escalate”. On this view, tariffs are greatest seen as a negotiating tactic designed to extract financial coverage concessions from key buying and selling companions.
The tariffs proposed by Trump would solely have restricted affect on the US commerce deficit and a sizeable unfavourable impact on the world economic system, largely due to the inevitable retaliations and an appreciation of the greenback fuelled by the deliberate devaluation of the renminbi. A stronger greenback wouldn’t solely infuriate Trump; it will additionally destabilise the worldwide economic system, significantly the growing world.
As Bessent argued when he talked of a “world financial reordering” wherein he’s ready to play a component, and as Trump demonstrated in his first time period with a bilateral deal between the US and China, the doubtless upshot can be a world grand discount within the type of a co-ordinated and gradual depreciation of the greenback in alternate for a discount in American tariffs. This may not solely pressure China to simply accept extra foreign money flexibility however would additionally assist different international locations to contribute extra meaningfully to world rebalancing by boosting home demand.
In return, the US would decide to decreasing tariffs and to some extent of fiscal consolidation. This may stabilise the greenback and promote a rebalancing of the world economic system conducive to raised allocation of worldwide investments and financial savings. It will additionally enhance the expansion potential of the world economic system, particularly in rising and frontier markets.
Such a grand discount, which has echoes of the Baker-engineered 1985 Plaza Accord wherein the US took co-ordinated motion to weaken the greenback, can be a approach to place Maga financial coverage in a co-operative worldwide framework. With out it, there can be an actual threat of a destabilising surge within the greenback resulting in runaway fiscal coverage and debt monetisation and ultimately culminating in a foreign money disaster.
Bessent has some vital obstacles to beat. First, he must create a cohesive financial policymaking setting contained in the Trump administration. Second, he would wish to have the ability to get a set of intelligently crafted spending cuts by way of Congress. And third, and most significantly, he has to revive the US authorities’s skill to co-ordinate coverage on the worldwide stage. If he can do all that, Bessent definitely has a shot at being Trump’s Baker.
