Matt Kelley/AP Photo
Donald Trump listens as Scott Bessent speaks on the economy, in Asheville, North Carolina, August 14, 2024.
The most overused phrase since Donald Trump chose billionaire hedge fund manager Scott Bessent as his Treasury secretary nominee is “sigh of relief.” As the theory goes, Bessent would command respect from the markets, steering the next administration toward the usual conservative agenda of tax cuts and deregulation, and away from anything disruptive.
That sigh lasted all of one day. The president-elect, in a familiar declaration of policy by way of a post on social media, announced his intention to impose a 25 percent tariff on imports from Canada and Mexico, and a 10 percent one on China, specifically to impede an “invasion” of migrants and drugs into the U.S. This would affect around $1 trillion in annual imports from America’s three largest trading partners, spawn retaliation, do little to prevent border crossings that are already muted and typically dependent on job availability, and of course, raise prices on many goods and services.
But is there that much divergence between the nomination of Bessent and the tariff threat? Not if you listen to how the Treasury nominee sees the job, or if you know how tariffs in the Trump era will take on a premodern character, where proximity to the king will determine one’s economic fate.
Some have focused on Bessent’s 3-3-3 plan of targeting 3 percent GDP growth, a 3 percent budget deficit, and three million more barrels of oil per day. (The oil industry doesn’t want to do the latter, claiming they’re maxed out already; in reality, they don’t want more production to lower global oil prices.) But Bessent’s real aims seem to match his investing history, which involved wagering on geopolitical shifts, finding opportunity in other countries’ chaos and misery.
He has laid out a Trump-ian strategy of using threats as the first salvo in negotiations. This interview conducted a few months ago is a good window into his mindset. “I think we establish criteria, you can call it … green-yellow-red,” Bessent said. “This is how you get in the green box, this is how you stay in the green box. If you’re India, you want to have 20% tariffs, you want to buy sanctioned Russian oil, you’re in the yellow box, and by the way, if you keep buying that oil, you’re moving toward the red box.”
This idea uses trade barriers like economic sanctions and security arrangements to induce changes in other countries; Bessent suggests that nations under the U.S. security umbrella should buy long-dated U.S. debt. Chinese tariffs, Bessent says, should encourage the country to change its export-led strategy and base its economy more on internal consumption.
It’s a cockeyed version of “friendshoring,” the Biden administration theory of increasing trade ties with allies, only under the Bessent-Trump plan it takes on a menacing form: Countries must play ball or get whacked. This actually reveals some continuity between Trump and his predecessors: He believes in American hegemony, and his trade policies are subservient to geopolitical goals, to keeping the world in line under the hegemon. You’ll notice that workers don’t really enter this equation.
Monday night’s announcement puts our biggest trading partners in the red box, giving them the option to move out if they stop migrant and narcotic flows. This has happened before; a proposed tariff on Mexico in 2019 was canceled at the last minute after Republican senators threatened to block it. This time, there are far fewer checks on Trump’s power in the GOP.
One wonders what Canada is doing in this conversation. Over 81 percent of border crossings in the last five years have been over the U.S.-Mexico border. Though Canadian border crossings rose this summer, such encounters are responsible for at most 3 percent of the total, the numbers have plunged this fall, and there’s more concern about migration in the other direction, with immigrants fearing persecution in the U.S. fleeing north. Canada is a net exporter of fentanyl, but not primarily to the U.S., and just this month Canadian authorities seized the largest drug lab in the country. (Most of the precursor chemicals come from China.)
The likely reason for Canada’s inclusion is the U.S.-Mexico-Canada free-trade agreement (USMCA), the rewrite of NAFTA that Trump signed during his first term. The USMCA would appear at first glance to nullify additional tariffs, but a national-security exception could allow Trump to impose them through using the International Economic Emergency Powers Act during a proclaimed national emergency. Clearly, Trump will call the border crisis an emergency, not only for the purposes of mass deportation but to give a boost to this tariff threat.
There is a review clause in the USMCA set for July 2026. Trump is signaling that negotiations will start early. That’s something Canada appears to want as well. Officials there have decried Mexico for its deepening economic relationship with China. The two countries have doubled trade in goods since 2010, and Canada and the U.S. warn that China could pass goods like automobiles through Mexico under the free-trade agreement.
Canada isn’t getting much out of the USMCA (trade with the U.S. has flatlined), the new regime in America wants to stack tariffs on top of it, and Mexico is already talking about retaliatory tariffs. It feels like free trade in North America is dead. But Mexico’s economy runs on exporting to the U.S., and Canada is deeply integrated as well, trading hundreds of billions of dollars’ worth of fossil fuels, auto parts, lumber, and much else. They want to escape the red box, offering whatever concessions are necessary; maybe a cosmetic announcement to shutter the border, for example. This is another Trump-ian technique, to manufacture a crisis, defuse it, and then lap up praise for the averted disaster.
BUT THERE’S A SECOND PIECE TO TRUMP’S TARIFF STRATEGY, involving not countries but the importers and exporters. This is going to be one of the biggest locations of corruption and cronyism in Trump’s second term; it already was, actually, in the first. I’m talking about tariff waivers.
New tariffs are clearly on the way, including more on China, leading companies relying on imports to scramble. During the first term, the companies requesting waivers from Trump’s 2018 tariffs on China that made bigger donations to Republican causes found themselves more able to avoid the levies, according to researchers from Lehigh University and elsewhere. “The tariff exemption grant process functioned as a very effective spoils system allowing the administration of the day to reward its political friends and punish its enemies,” the authors wrote.
The China tariffs, administered under Section 301 of the Trade Act of 1974, had a secret waiver process, with no oversight from Congress or ability to appeal. It was a perfect conduit for Trump’s preferred way of doing business: taking tribute from supplicants and rewarding them. Other tariffs in the Trump era, like on steel and aluminum, were conducted with outside oversight and did not show this pattern.
One company made 40,000 waiver requests. Bibles were given protection from tariffs, on the theory that Bibles simply couldn’t be produced in the United States, somehow ignoring the existence of the printing press since Gutenberg. Bigger businesses with more ability to engage in the pay-to-play process got better treatment. Your tariff exemption depended on the quality of your lobbyists and the value of your donations to Republicans above anything else.
There has already been a flurry of activity from companies wanting to position themselves for new waivers. Businesses donated $425 million to Republicans in the past election cycle, preparing for exactly this moment. More tariffs, as Paul Krugman notes, equals more opportunity for tariff waivers, and therefore more opportunity to buy the king’s love. When Ken Griffin, of all people, expresses publicly that tariffs can lead to crony capitalism, I think it’s clear what’s coming.
But it goes beyond tariffs. Agribusiness will lobby to protect their low-paid migrant workers from deportation, and seek more money from a New Deal–era program to flat-out compensate farmers hurt by trade wars. Defense contractors will lobby to shield their fat profits from the new government efficiency monitors. Health companies will lobby to stop Robert F. Kennedy Jr. from “going wild” on their little corner of the sector. Big Tech will lobby to defuse threats to their mergers. Television networks, and their top personalities, will lobby to avoid seizure of licenses or freezing of access.
These benefits will be delivered unevenly, based on who knows who, what part of the country you live in, how friendly you are with the right person. Washington will be subject to a version of what is known as the Cantillon Effect; if you are closer to power, you will have better success in your business. Another way to describe it is oligarchy.
Usually cronyist countries have depressed economies. Bessent sees it as purifying. “We are going to have to have some kind of a grand global economic reordering … I’d like to be a part of it,” he said earlier this year. There’s nothing really that grand about this, though. It’s just brute force and favor-trading.
