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The writer is a senior fellow at the German Council on Foreign Relations
US president-elect Donald Trump has picked Scott Bessent to be his Treasury secretary. Having worked with him when he was chief investment officer of Soros Fund Management, I believe he could play a role similar to the one that James Baker played for Ronald Reagan in the 1980s, engineering a global deal to realign the world’s major currencies and achieve some level of fiscal adjustment.
Bessent has always been an acute observer of the world economy and the workings of the international financial and monetary systems. He ran George Soros’s office in Europe at the time of the 1992 sterling crisis; he understood before most how the radical changes implemented by Shinzo Abe would reflate the Japanese economy despite the headwinds of secular stagnation in 2012; and he grasped better than Soros himself why the interconnectedness of the US and Chinese economies would force a tacit “Shanghai accord” to avert a financial crash in China in 2015.
Policy and political regime changes in the global macroeconomic environment, exchange rate misalignment and imbalances are among Bessent’s central preoccupations. While Bessent formally stands behind the Maga economic policy agenda, he certainly understands how disruptive it could be not only to the US and the global role of the dollar, but also to the world economy.
A very aggressive trade policy towards China as well as towards the US’s allies will not achieve the necessary rebalancing in the world economy but could eventually lead to a new grand bargain — a strategy Bessent has described as “escalate to de-escalate”. On this view, tariffs are best seen as a negotiating tactic designed to extract economic policy concessions from key trading partners.
The tariffs proposed by Trump would only have limited impact on the US trade deficit and a sizeable negative effect on the world economy, in large part because of the inevitable retaliations and an appreciation of the dollar fuelled by the deliberate devaluation of the renminbi. A stronger dollar would not only infuriate Trump; it would also destabilise the global economy, particularly the developing world.
As Bessent argued when he talked of a “global economic reordering” in which he is prepared to play a part, and as Trump demonstrated in his first term with a bilateral deal between the US and China, the likely upshot would be an international grand bargain in the form of a co-ordinated and gradual depreciation of the dollar in exchange for a reduction in American tariffs. This would not only force China to accept more currency flexibility but would also help other countries to contribute more meaningfully to global rebalancing by boosting domestic demand.
In return, the US would commit to reducing tariffs and to some degree of fiscal consolidation. This would stabilise the dollar and promote a rebalancing of the world economy conducive to better allocation of global investments and savings. It would also improve the growth potential of the world economy, especially in emerging and frontier markets.
Such a grand bargain, which has echoes of the Baker-engineered 1985 Plaza Accord in which the US took co-ordinated action to weaken the dollar, would be a way to place Maga economic policy in a co-operative international framework. Without it, there would be a real risk of a destabilising surge in the dollar leading to runaway fiscal policy and debt monetisation and eventually culminating in a currency crisis.
Bessent has some significant obstacles to overcome. First, he needs to create a cohesive economic policymaking environment inside the Trump administration. Second, he would need to be able to get a set of intelligently crafted spending cuts through Congress. And third, and most importantly, he has to restore the US government’s ability to co-ordinate policy at the international level. If he can do all that, Bessent certainly has a shot at being Trump’s Baker.
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