Trump’s tariffs, tax cuts will drive US growth and investment, Bessent says

WASHINGTON - US Treasury Secretary Scott Bessent on May 5 said that President Donald Trump’s tariff, tax-cut and deregulation agenda would work together to drive long-term investment to the US economy, adding that US financial markets were “anti-fragile” and would weather any short-term turbulence.

Mr Bessent, in prepared remarks to the Milken Institute Global Conference in Los Angeles, delivered a full-throated defence of Mr Trump’s tariffs, but emphasised the Republican tax Bill working its way through Congress, saying it would make many parts of the President’s first-term tax cuts permanent, including a deduction for small businesses.

“The primary components of the Trump economic agenda – trade, tax cuts and deregulation – are not standalone policies. They are interlocking parts of an engine designed to drive long-term investment in the American economy,” Mr Bessent said.

Mr Bessent said that Mr Trump’s tariff blitz since taking office for a second time on Jan 20 was engineered to encourage companies like those attending the conference to invest in the US, build factories and make products in the US.

This effort would be rewarded with tax and deregulation benefits, Mr Bessent said. Mr Trump’s tax legislation would provide tax credits and deductions for research and innovation into high-tech operations, restore 100 per cent expensing for equipment while expanding this benefit to new factory construction to accelerate investment, he added.

“The result of the President’s economic plan will be more. More jobs, more homes, more growth, more factories, more critical manufacturing plants, more semiconductors, more energy, more opportunity, more defence, more economic security, more innovation,” Mr Bessent said.

In a subsequent interview with CNBC television, Mr Bessent said that he believed these policies could push US growth close to 3 per cent by this time in 2026, which would help to bring down US budget deficits to their long-term average share of economic output.

The US economy contracted for the first time in three years in the first quarter amid a flood of imports to beat Mr Trump’s tariffs, and the International Monetary Fund has forecast that US gross domestic product (GDP) will grow only 1.8 per cent in 2025.

Gradually shrinking deficits

He said the “smart way” to cut deficits was to reduce them by about US$300 billion (S$387 billion) a year, noting that is equivalent to about 1 percentage point of the nearly US$30 trillion US economy.

“We’re talking about bringing the deficit down by about 100 basis points every year for four years, (to) get us back to the long-term average of 3.5 per cent,” he said, referring to percentages of GDP. “And then a big cure for the deficit is upward growth shock.”

He told the Milken conference that if deficit reduction can remove credit risk from US Treasury debt, then interest rates “will naturally come down”.

The Treasury chief said US financial markets were well equipped to weather any short-term turbulence, citing their rebound from challenges over the past century, including the Great Depression, two World Wars, the Sept 11, 2001, attacks, the 2008 to 2009 global financial crisis, the Covid-19 pandemic and the subsequent surge in inflation.

“Each time the American economy gets knocked down, it gets back up again. And it gets back up even stronger than it was before,” Mr Bessent said. “US markets are anti-fragile. Indeed, the entirety of our economic history can be distilled in just five words: ‘Up and to the right’.” REUTERS