Watch CNBC's full interview with Treasury Secretary Scott Bessent

Key Concepts

• Investment Boom
• Industrial Policy
• Government Shutdown
• US-China Trade Relations
• Rare Earth Minerals
• Reshoring
• Strategic Industries
• AI Investment
• Productivity Miracle
• Financial Deregulation
• Budget Deficit
• Tariff Policy
• Trade-Weighted Dollar
• Fed Chair Criteria
• Parallel Prosperity
• One Big Beautiful Bill

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The CNBC Invest in America Forum in Washington, D.C., featured Treasury Secretary Scott Bessent discussing American industrial policy, economic outlook, and various pressing issues with Sara Eisen.

The American Investment Boom and Trump Administration Policies

Secretary Bessent asserted that the current investment boom is "just seeing the beginning of it." He noted that while the previous administration saw $1 trillion in foreign direct investment over four years (approximately $250 billion last year), President Trump's policies have "unleashed this boom." Key policies cited include:

• Trade Tax and Tariff Policy: Providing certainty.
• "One Big Beautiful Bill": A tax bill passed on July 4th, offering tax certainty.
• "America is Open for Business" Stance: Encouraging domestic investment.
• Regulatory Certainty: Addressing the previous loss of manufacturing capability in the U.S. due to excessive regulation and permitting hurdles (e.g., for factories and pipelines).

Government Shutdown and Economic Impact

Bessent identified the ongoing government shutdown as the "only thing slowing us down." He attributed the shutdown to Democrats, claiming they failed to challenge President Trump's policies in courts and are now using the shutdown as a tactic. He called on "moderate Democrats to come across the aisle" to reopen the government.

• Economic Cost: The shutdown is "starting to hurt the economy, maybe up to $15 billion a day," and has impacted small business confidence.
• Military Pay: The Pentagon is using surplus funds to ensure military personnel receive paychecks.
• Media Bias: Bessent criticized the mainstream media for being "complicit" by not highlighting the negative impacts as they would if Republicans were responsible.
• Republican Stance: House Speaker Mike Johnson passed a "clean CR," and Republicans are advocating for reopening the government before negotiations.

US-China Trade Relations and Strategic Reshoring

The market's concern about US-China trade relations, particularly China's rare earth mineral restrictions, was a significant topic.

• China's Actions: Bessent dismissed China's narrative that their actions were a response to US policies, stating it was a pre-planned move, possibly triggered by a lower-level official's threats regarding US docking fees for Chinese ships.
• "China Versus the World": He emphasized that this is a global issue, not just a bilateral US-China problem. During IMF week, the US is coordinating a "fulsome group response" with European allies, Australia, Canada, India, and Asian democracies.
• "Fulsome Response" Explained: The US possesses "lots of levers" (products China needs, like semiconductors and aircraft engines) that could be equally damaging, though the goal is not to harm economies. The US and its allies will "assert sovereignty" against China's "command and control" economic approach.
• Reshoring and Decoupling: President Trump's investment boom includes strategic "reshoring" to reduce dependency. China's rare earth export control is seen as a "sign of decoupling."
• Rare Earths Problem: This issue is "decades in the making," with China dominating 70% of mining and 95% of processing/refining. China historically used price cutting to eliminate competitors.
• US Strategy: The US will "set price floors" and implement "forward buying" to ensure domestic processing and refining capacity. This industrial policy will apply across "seven strategic industries" identified in a paper Bessent wrote (e.g., pharma, semiconductors, shipbuilding, steel, rare earths).
• Vigilance: Bessent stressed the need for vigilance, citing the example of a leading Chinese rare earth company, formerly owned by General Motors, returning to Chinese ownership after a five-year CFIUS mandate expired in 1995 due to lack of oversight.
• High-Level Communication: Despite tensions, communication with Chinese counterparts is ongoing at "very high levels," including working-level meetings during IMF week and a potential meeting between Bessent and Chinese Vice Premier Hui Fung during an upcoming Asia trip.

AI Investment Boom and Employment Outlook

Bessent believes the AI investment boom is only in its "third inning," comparing it to the 1990s internet and office tech boom that led to a "productivity miracle."

• Productivity Impact: He expects AI implementation to significantly boost productivity in the first and second quarters of next year.
• Biden vs. Trump on AI: He contrasted the Biden administration's desire to "shackle up AI" through regulation with the Trump administration's financial deregulation, which created an estimated "$2.5 trillion of lending space" for the CapEx boom.
• Employment: Bessent is "not worried about mass unemployment because of AI." While specific jobs may be affected, the massive CapEx investment will create "plenty of jobs." He advised young people to "get educated on AI" to secure future employment.
• Job Growth Slowdown: He attributed the recent slowdown in job growth to border security measures, deportations, and the "right sizing" of the federal government, expecting private employment to absorb those leaving government jobs.

Economic Forecasts, Deficit, and Inflation

• Optimistic Outlook: Bessent is "definitely on an upswing" due largely to the "one big beautiful bill."
• Budget Deficit: The deficit was smaller last year, and the deficit-to-GDP ratio now has a "five in front of it" (aiming for a "three"). He advocated for "grow more, spend less or constrain spending" to reduce it.
• Inflation: Bessent maintained that tariffs are "not inflationary." He argued that current inflation is "very disjointed," primarily in services, and not a "generalized inflation increase." Inflation expectations remain "well anchored."
• Trade Negotiations and Tariffs: He highlighted the success of USTR Jamison Greer in negotiating lower tariffs and non-tariff trade barriers for US companies selling abroad, leading to increased exports and company profits (e.g., Indonesia reducing 9,000 tariff lines).

Industrial Policy and Government Stakes in Companies

The administration's approach to industrial policy includes taking stakes in strategic private companies.

• Rationale: This is necessary when facing "non-market economies like China" to ensure self-sufficiency or sufficiency with allies.
• Defense Companies: Bessent noted that defense companies are "woefully behind in terms of deliveries" and, as their biggest customer, the government may "prod them to do a little more research" and reduce stock buybacks.
• Exit Strategy: Equity stakes, like Intel's (a conversion of a grant), are intended to ensure the US benefits from the upside. Private capital, such as JPMorgan, is expected to invest in strategic areas like rare earth processing and "strategic mineral reserves."
• Addressing "Socialist" Critique: Bessent clarified that the government is not taking stakes in non-strategic industries but focusing on the "seven strategic industries" where past vigilance was lacking.

Next Fed Chair Selection Process

Bessent confirmed he is not a candidate for Fed Chair. The selection process started with 11 candidates, narrowed to 5, and will be further reduced to 3-4 for the President to interview after Thanksgiving.

• Key Criteria:
  1. Open Mind: Like Alan Greenspan, who allowed for "substantial non-inflationary growth" during the 1990s internet boom.
  2. Theory of the Case: A clear understanding of the current economic landscape.
  3. Management Level: Recognition that the Federal Reserve is a "gigantic, sprawling organization" responsible for payments regulation, not just monetary policy.

Gold Prices and US Dollar Strength

• Gold: Record high gold prices are attributed to "more buyers than sellers" and a historical decline in gold mining, not necessarily anxiety about the US dollar.
• US Dollar: Bessent corrected the interviewer's figure, stating the trade-weighted dollar is down 6.7% this year, not 10%. He emphasized that the US is the only G7 country with 10-year rates down 50 basis points.
• Dollar Strength Drivers: He linked dollar strength to the "one big beautiful bill" and the resulting economic outlook and certainty. He also noted that the US current account deficit is starting to contract with a more formalized tariff regime, which should be "very supportive for the dollar."

Conclusion: Optimism and Parallel Prosperity

Secretary Bessent's overarching optimism stems from the belief that "the private sector in the US has been unleashed." He sees the government's role as providing "guardrails, but stay out of the way," through deregulation and a focus on business.

• "Parallel Prosperity": This aligns with President Trump's vision where "Main Street does well" alongside Wall Street, driven by a focus on small and community banks.
• Industry Revival: He highlighted the revival of industries, including energy (completing pipelines, drilling again), and tech companies, after a period of "hibernation."
• Historical Parallels: He drew parallels to transformative periods like the late 1800s (railroads) and the 1990s (internet/office tech boom).
• US Advantages: The US benefits from energy resources, a strong regulatory environment, and "great certainty in our tax policy" (thanks to the "one big beautiful bill").
• Support for Working People: He also mentioned President Trump's campaign promises, such as no tax on tips, overtime, or Social Security, and deductions for buying American cars, benefiting both large companies and working individuals.