Bessent Hails Financing Pitch in Japan Trade Deal as EU and China Talks Loom

Bessent Hails Financing Pitch in Japan Trade Deal as EU and China Talks Loom

I’m joined by the US Treasury Secretary,
Scott Bessant. This morning on the heels of this
agreement the President announced last night.
Last week you joined me, John and Lisa, and you said you’re going to Japan for
the World Expo. Wasn’t really going to be focused on
trade. You came back, the president had a 75
minute meeting as well last night with the trade negotiator.
You were in the room and he got this deal with you alongside him over the
finish line, even though the reporting out of Washington that actually the
discussions with Japan were quite difficult.
What changed in the last 24 hours? Look, Anne-Marie, we had some
discussions about the overall US-Japan relationship, which was one of the
strongest in the world. When I was in Tokyo and Osaka and then
we got back, there are elections on Sunday.
LDP did slightly better than expected. They don’t have a majority.
Japanese government was ready to deal, and as president, only President Trump
could do. He brought the Japanese trade delegation
into the Oval and had a very fulsome negotiation with them.
I tell you, they’re tough negotiators for President Trump’s tougher.
Well, there is a photo circulating on Twitter from Dan Scavino, and you
actually see a Sharpie axe out of some what looks like preliminary deals for
even more concessions with Japan. I want to ask you about this 15% tariff
rate. Is that the new floor now for trading
partners when you’re going into these negotiations?
Well, I think it’s very important to know that, you know, 15% for Japan, for
reciprocal tariffs, for autos. That is a different kind of deal.
But because the Japanese proposed a very innovative solution, we’ve been working
with them for months. The trade team, myself, Ambassador
Greer, Secretary What? Nick And they came to us with the idea
of a Japan U.S. partnership where they are going to
provide equity, credit guarantees and funding for major projects in the U.S..
So they got the 15% rate because they were willing to provide this innovative
financing mechanism.
There is a lot of Japanese FDI in the United States already.
Is this new capital? Oh, no, this is all new capital.
This is this is all new capital. And it is going to be targeted at the
strategic industries. The President, Trump and this
administration believe that we have to de-risk on it.
During COVID, we saw our vulnerabilities, whether it was in
medicine, semiconductors. So we are going all in over the next few
years to de-risk our supply chains. And this deal, thanks to President
Trump, is going to be part of that when it comes to the 15% rate on autos.
This means that Toyota is basically paying a cheaper rate than, say, GM if
they have inputs from other countries. They’re still at the 25% auto rate.
Do you see the auto rate leveling out to something lower than 25%?
You know, we’ll have to see. And again, those are just GM components.
There’s also the US and KIA, the portion of any autos assembled in
the U.S. and then, of course, GM and especially
Ford. I think Ford has the largest U.S.
production you’re building in the U.S. There are no tariffs.
So when it comes to what’s next, we know the EU negotiators are in town.
This 15% rate feels like potentially a floor.
Could anyone get below 15%? Is the European Union still trying for a
10% minimum baseline tariff? Well, again, the 15% is a result of this
very innovative package that the Japanese came with.
And President Trump being able to push them to do even more.
So has Brussels come up with anything innovative?
Not yet. But again, talks are going better than
they had been. I think that we are making good progress
with the E.U. But as I’ve said before, Emery, you
know, the E.U. has a collective action problem.
27 countries. Great thing about dealing with the
Japanese. I’ve been going to Japan since 1990.
I think this weekend was my 52nd trip. And the Japanese government moves.
It’s one entity. They’re highly organized across all
levels of government. So you say the talks are going better.
We just have a story hitting the terminal this morning from our
colleagues in Europe that the European Union is readying 00 billion euros.
If there is no deal in place, they will impose 30% tariffs on those €100 billion
worth of goods. Do you think we’re going to get to that
place? I think it’s a negotiating tactic and
it’s what I would do if I were in their place.
But Ann-Marie, remember, we are the deficit.
Nation. They’re the surplus nations.
So any kind of a escalation in trade problems will always hit them worse.
I want to also talk about what’s going on with China.
You’re going to Stockholm Monday, Tuesday to meet with your Chinese
counterparts. Are we going to continuously see the
discussions revolve around rare earths and export controls or they’re going to
be other items on the table? I think we’re in a very good place with
China now and we can start moving on to bigger discussions.
You know, as I’ve said many times, there is the potential for a big, beautiful
rebalancing between the US and China. President Trump is committed to bringing
back precision manufacturing to the U.S. and as we become more of a manufacturing
economy, China is highly imbalanced. They account for 30% of all the
manufacturing output in the world. That’s not sustainable.
We believe they should become more of a consumption economy.
If they are willing to go down that route, then we could actually do it
together. And then there are lots of other things
we can talk about, whether it’s them buying sanctioned Russian or Iranian
oil. You know, a number of security things.
And so I the purchasing agreement from Trump’s first administration, he had a
deal with China, the phase one purchasing agreement on agriculture.
Well, again, that’s that’s another way that we could bring this imbalanced
relationship into balance. So we will be talking about a purchasing
agreement, especially AG. So
and to refresh everyone’s memory, we had the purchase agreement.
Chinese lived up to the purchase agreements during President Trump’s
final year in office, and then the Biden administration didn’t enforce those
purchase agreements. So, you know, we’re going to let bygones
be bygones. We’re going to look forward.
And I think we can come up with some very interesting purchasing agreements.
As you know, President Trump is committed to the American farmers.
Well, looking forward, you told me, John and Lisa last week, the market doesn’t
need to worry about August 12th. That’s the deadline for this current
detente between Washington and Beijing. What’s the new deadline going to be?
Well, again, you know, I think that we could roll it forward maybe on a 90 day
increment. And I think the good news here is that
we are back on track with the Chinese negotiations on April 2nd.
President Trump told countries, Here’s your reciprocal rate, but that was the
ceiling. If you do not escalate, if you don’t
escalate, this is the max that the Chinese chose to escalate.
But now we both sides have de-escalated and I think we can get into a very good
cadence of regular meetings with them. And look, we’re the two largest
economies in the world. We do not want to decouple with the
Chinese. We just need to de-risk part of our
supply chain. Does regular incremental meetings
include a meeting between President Trump and Xi Jinping this fall?
I do know the party chair. She has invited President Trump to visit
China. I don’t know.
I don’t have dates on that. I don’t know if the president’s
accepted. I know they have a fantastic
relationship on a personal level, which I think forms the basis of everything
between the US and China. Local reports in China, we’re talking
about the two meeting on the sidelines of the APEC summit in South Korea this
fall at the end of October, early November.
Or maybe President Trump going to China first.
Could we see a meeting that soon? You think a meeting within this year can
happen? I again, I’m not privy to the
president’s travel schedule beyond September, so we’ll see.
And nothing before a meeting which Xi Jinping before September, nothing before
Labor Day. So in the last week, I do want to go
through something that’s going on with China.
They’ve imposed exit bans on a Wells Fargo banker, a Commerce Department
employee, and according to Microsoft, they hacked into their software.
Will you address these actions at the talks in Stockholm?
We’re going to address a whole host of things.
And, you know, obviously, things like that will be on the agenda with my
Chinese counterpart. You had said to me last week that the
Nvidia H20 chip was potentially a chip in negotiations, a mosaic part of the
deal. Do you think China’s doing this for
leverage at the trade table? Absolutely not.
Absolutely not. Because
again, it would be the age 20, while it is an
advanced chip, is not one of the most advanced chip.
I think if we were to think about the NVIDIA stack, the HP would be some
somewhere in fourth, fifth down the stack.
And my understanding is that while they can produce something with similar
activities, China’s malicious behavior, even just in the past week, even
targeting a Commerce Department employee, do you think they’re doing
this to have leverage with the United States?
Well, I can tell you in Stockholm, it’s not going to give them any leverage with
me. And it’s a big sprawling bureaucracy.
And sometimes I think we may see the arrests may have been in a province,
the central government may not be aware of it.
So, you know, I would highly doubt that something at that level that they have
wanted to engage with the US. We are engaging with them and I think
both sides want to move forward in a productive way.
But you’ll raise these issues. Yes.
So now that the administration is getting trade deals across the finish
line, Japan and. Asia, Philippines.
Yesterday you said the European Union potentially in sight.
Do you think the Federal Reserve is going to have enough clarity by
September to cut interest rates again? I’m not really sure what the Federal
Reserve is looking at, because thus far we have not seen or we’ve seen
very little, if any, price pressures from the tariffs.
And if we were to see those, they wouldn’t be inflationary, be a one time
price adjustment. So again, I think that their analysis of
tariffs is a bit off. Well, Governor Waller made this exact
case to us on surveillance on Friday, and it sounds like he might dissent at
this meeting. He also said the president hasn’t called
him yet. He’s one of these names that are
circulating around. Could he replace Fed Chair Jay Powell?
Is he a name you’re looking at? Have you reached out to him?
I think there are a lot of strong candidates, including several who are on
the main board and perhaps regional bank presidents.
So are there other names outside of Kevin Hassett, Kevin Warsh, Christopher
Waller, and you yourself has been circulating.
There’s a long, long list. And like I said, there’s some great
candidates. And have you reached out to everyone on
both those lists? I’m not going to talk about the process,
but we are getting the process underway. Obviously, it’s going to be President
Trump’s decision and we’re not in a rush.
So, oh, you’re not in a rush. But the president continuously says he
wants to get rid of the Fed. Chair J.
Jay Powell, Mohamed El-Erian yesterday said he should resign.
Do you think Jay Powell should step down to protect the institution?
The couple of things. One, the president has said he is not
going to fire Chair Powell. I was somewhat surprised that Mohamed
El-Erian came out and said that. And what I’ve come out and said is that
I believe that it would do Chair Powell a favor and he would be doing the
institution a favor if the if he did an internal review, separate
monetary policy from everything else. And this is something that Larry Summers
and I agree on. Is this mission creep from the Fed is
endangering the independence of monetary policy.
So all these other things that they’re engaging in
could threaten monetary policy. So it is a big, sprawling institution.
The central budget for the board is up for ex since 2004.
And, you know, every every institution needs to examine them.
But you want the man that you guys don’t think is doing a good job to run that
review. What’s that?
But you want the man, Jay Powell, which you and the president don’t think is
doing a very good job to run the review of the institution?
Well, I think that it could be a committee.
It could be a a group. They could invite outside experts in the
Bank of England after that. 12 2822 rate hike shock went back and
did a very good examination of what went wrong with monetary policy that brought
in outside experts. So, you know, I think an internal review
would be a good start. And if the internal review didn’t look
like it was serious, then maybe there could be an external review.
Have you communicated this directly with Jay Powell?
Do you guys continuously have your once a week breakfast lunches either at the
Fed or the Treasury? I gave a speech on Monday night on bank
deregulation, bank regulation, the future of regulation, which is, you
know, aside from monetary policy, I think the most important thing for the
economy, the Fed is one of three regulators.
There’s the Fed, the Office of Comptroller of the Currency, which sits
under Treasury and the FDIC. And I believe that
all three of those should have important voices.
And I believe that the regulation has been much too stringent since the great
financial crisis. We are seeing this big build up outside
the regulated financial system. I think I saw something two days ago.
The private credit is up ten x. I’m not saying it’s a financial
stability problem, but I am saying that there’s a regulatory arbitrage going on.
But that was a long way of saying I saw Chair Powell at that speech.
And your lunches and breakfasts continue always.
So you have a good relationship with him at the moment.
We have continuing communication. Last time you were on, you also talked
about the potential next Fed chair. You said his or her nomination.
Is Governor Bowman also in the running? Again, I’m not going to name.
Name names, but they’re good candidates.
As I said on the board, there are several female regional regional bank
presidents. And then there there are some fantastic
women outside the Fed. There’s also Governor Coogler’s chair
that is open in January. Have you started that process?
A It’s a simultaneous process. The Kugler chair is a 14 year seat, so
we will be looking at that also. And again, I think we have some very
good candidates. Given you just saw Jay Powell, has he
yet to tell you whether or not he is going to leave the board his governor
seat by before 2028? He hasn’t yet.
My my belief is that he will. And I think that it would be very good
for the institution for him to do it. And I think it’d be very good for him
personally to do it. The president once said that he goes out
and riles financial markets and then he sends you his Treasury secretary, out to
calm things. Things are pretty calm today.
But when it comes to the Fed chair, I know you love college basketball and you
talk about the president being Bobby Knight.
And I know you love Dean Smith. Do you are you guys playing this good
cop, bad cop when it comes to talking about the Fed, talking about Jay Powell?
Not not at all. You know, Anne-Marie, the reason I think
that I to the extent I’m able to calm the markets and that that doesn’t always
happen. I was in the investment business 35, 40
years. But I think more importantly than that,
I understand what President Trump is doing.
And a lot of times he’s one, two, three steps ahead of the market.
And as you know better than anyone, the market wants instant explanations.
They want they want clarity, They want immediate gratification.
So I think that I’m able to, as a former practitioner, I think about when
President Trump tells me what his goals are, I think about what is the best way
for me to give good framing to market participants, for them to understand
what he’s doing. Because, you know, he always has a plan.
It’s not always obvious. So you are communicating almost the
strategic ambiguity that he likes to operate from.
Well, and I’m also trying to explain that there there is a plan because, you
know, look, these letters went out. Everyone was, oh, my gosh, these are
high rates. And I think the president created
maximum negotiating leverage and the market actually took it pretty well.
Took it pretty well. Just to finish on that final point then,
do you think he’s more emboldened to go for higher rates with the trading
partners now given the market is not pushing back?
Well, I, I think he’s created a lot of leverage because he’s created an ABS
situation. He was able to go to the trading
partners and say, look, I am happy to take in this tariff income if you don’t
want to negotiate. This is a high rate.
But the U.S. is taking a massive amounts of tariff
income. We had the first June budget surplus
since 2015. Last month we reported it this month.
And so we are taking in substantial income.
So President Trump is creating this leverage by saying, if you don’t want to
negotiate with me, I’ve sent you a letter with a high rate you have at the
high rate, or come and negotiate in better fashion.
Because I’ll tell you what was fascinating for me, and this was
President Trump at his best. At his best was the Indonesians came out
with what I thought was a very good offer
out of the box. President Trump kept pushing them.
He raised the reciprocal rate when he sent them the letter.
And five iterations later, the Indonesian trade deal was greatly
improved, turned into a great deal for both sides.
Secretary Scott, thank you so much for your time this morning.

Treasury Secretary Scott Bessent stopped short of saying the European Union can win the same sort of trade deal as Japan cut with President Donald Trump, highlighting that Tokyo’s success came thanks to an innovative financing arrangement.
“They got the 15% rate because they were willing to provide this innovative financing mechanism,” Bessent said in an interview on Bloomberg Television’s Surveillance program Wednesday, when asked whether other trading partners could get a similar reciprocal levy.
While Japan was previously facing a 25% tariff, its negotiators reached an agreement for a 15% rate, including on imports of automobiles — which are otherwise subject to a 25% product-related duty. The deal also features a $550 billion fund to make investments into the US.
“They came to us with the idea of a Japan-US partnership, where they are going to provide equity, credit guarantees and funding for major projects in the US,” Bessent said. He also said that the foreign direct investment pledge is “all new capital.”
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