At Scott Bessent Treasury Hearing: A Battle over Tax Cut Extensions and Questions About Tariffs

Treasury Secretary nominee Scott Bessent faced a divided Senate Finance Committee on Thursday for another Trump nomination hearing this week. To his credit, Bessent demonstrated a masterful view of the macroeconomics around tariffs, trade, and currency. He publicly acknowledged the benefits of tariffs, the damage done by the China shock, and how trade must be rebalanced to benefit Main Street producers and workers.

The main takeaway from the Committee is the Democrats are against extending the Tax Cuts and Jobs Act, which expires at the end of this year, and there is only lukewarm acceptance by both parties on broad tariffs, with a general acceptance for tariffs on China. Bessent will be tasked on both of these matters should he become Treasury Secretary. He is highly likely to be confirmed next week.

Ranking Member Ron Wyden (D-OR) set the tone for the Democrats for much of the hearing.

“How does Trump plan to pay for those continued tax cuts? Well, for starters he will be offering across the board tariffs and let’s be clear what this is all about: trillions of dollars in new taxes paid by American small businesses and consumers so big companies can get their taxes cut. It will lead to layoffs of thousands of manufacturing jobs,” Wyden said in his opening statement following Chairman Mike Crapo (R-ID).

The “Tariffs Are a Tax” Narrative Lives On

Wyden went after Bessent again during the question-and-answer period. He kept referring to tariffs as a tax.

Bessent asked Wyden if he really believed tariffs were a consumption tax, at which point Wyden said it didn’t matter how they were defined. “It’s going to be an increase in costs for businesses and consumers,” Wyden said. He has been telling his constituents that Trump’s tariffs will lead to higher costs.

Bessent immediately disagreed. “The history of tariffs and optimal tariff theory does not support what you are saying. If we used a ten percent tariff, then traditionally what happens is the currency appreciates by around four percent, so the ten percent is not passed onto the buyer,” he said about the immediate price impacts of tariffs. “Then you have various elasticities in the market, like consumer behavior might change and countries, especially China, will continue to produce more to maintain market share and prices fall because of that oversupply,” he said, to which Wyden chided him for being too “academic”. He then proceeded to challenge Bessent on how China is winning the clean energy market due to their position in solar, wind, EV batteries, cars and battery materials.

CPA Economic Model Shows 10% Universal Tariff Would Raise Incomes, Pay for Large Tax Cuts for Lower and Middle Class

Free trade must be balanced against fair trade and clearly trade has not been fair and that has fallen on American workers. China is the most unbalanced economy in the history of the world. They are in a recession. And they want to export their way out of that rather than rebalance their economy. We cannot allow a player like this to flood our markets.

– Scott Bessent, Treasury Secretary nomination hearing, Jan. 16, 2025

To give another example of the anti-tariff take, mostly by Democrats in this hearing, Sen. Maria Cantwell (D-WA) said the U.S. should innovate their way out of the trade deficit, devising new products that the world wants.

“When you talk about tariffs, that is when you get the Pacific Northwest’s attention. We have a net surplus in trade in our state because of aviation. Increasing our manufacturing innovation to sell to markets is a good economic strategy,” she said. “I worry that tariffs are going to increase prices on Americans. Isn’t expanding markets overseas a better economic opportunity as opposed to tariffs?”

She added that Washington farmers lose out from tariffs due to retaliatory tariffs by other countries. This is a favorite line by farm state senators because China has used its market powers here to take farmers as “trade war” hostages. However, it’s not just China. Cantwell worked with USTR to get India to remove tariffs and quotas on apples, for example.

“I looked back at older data on labor. In 2000, 69% of economic growth was due to labor and today it is 60% and falling, and it fell because of the China shock,” Bessent said, a popular term of phrase used to describe the hollowing out of U.S. factory towns once China entered the World Trade Organization in 2001.

China Shock 2.0 – Record China Trade Surpluses Worsen Global Disruption

Bessent said he would pressure China to follow through on their Phase One purchasing agreements reached with the Trump administration pre-Covid. He said he would talk to Trump about asking China to make up for the purchase targets missed when they retaliated, especially against soy and wheat farmers.

Farm state Sen. Todd Young (R-IN) said he believed tariffs were a good negotiation tool and helped strengthen certain industries. “But overuse can provoke costs and retaliation,” he said. He asked Biden to remove tariffs in 2023.

Bessent reminded Young that Trump overwhelmingly won the farmer and rural America vote.

“You should think of tariffs three ways: one will be for remedying unfair trade practices either in an industry or by a country, like steel and China. Another will be as a revenue source, and third is to use it for negotiations with countries like Mexico for the fentanyl crisis, for example.”

Bessent Supports TCJA Extension

No surprise here, but Bessent supports the extension of the Tax Cuts and Jobs Act. Making that tax law permanent is Chairman Crapo’s top priority as Chairman of the Senate Finance Committee.

Bessent said if TCJA is not extended, “We will face an economic calamity. Child tax credits will be halved, the allowable deductions will be halved. When you have sudden stops in the economy like that, the burden falls on working class Americans.”

Sen. Michael Bennet (D-CO) said the tax cuts only help the rich and big corporations.

Bessent disagreed. “Working families had real wage increases in 2018 up to 2020 pre-Covid,” he said.

Bessent believes TCJA will be renewed and supports making them permanent. “Permanency and forward guidance gives companies certainty. Permanency can unleash the Golden Age that Trump is talking about,” he said.

Sen. Catherine Cortez-Masto (D-NV) had a different tax question, this time regarding the 45x tax credit that is instrumental to the Inflation Reduction Act. She asked for Bessent’s thoughts on making changes there, worried that it would impact mining in Nevada.

Bessent said he was unfamiliar with 45x, but noted that it was important for the U.S. government to make it easier to mine “rare earths and vital minerals” in the United States.

Who is Scott Bessent?

Sen. Lyndsey Graham (R-SC) introduced Bessent, a fellow South Carolinian.

“We need a Secretary of the Treasury who has the trust of the president and loves his country and you hit it with this guy,” Graham said. “Trump gets to pick his cabinet. When Trump mentioned Scott to me I thought it was a home run even though this is not my portfolio. I think any Republican president would pick Scott. He really understands what president Trump wants to do.”

Bessent was born and raised in Conway, South Carolina from modest means. He started working when he was nine years old and made his way into Yale. From there, he got an internship on Wall Street at a firm, he says, that had a pull-out sofa where he could spend the night. He has worked in finance ever since.

His financial career began at Soros Fund Management, where he worked under George Soros during the famous 1992 trade to short the British pound. That trade resulted in over $1 billion in profits for Soros’s fund.

In 2000, Bessent founded his own hedge fund, Bessent Capital, and then closed that to return to Soros Fund Management as a Chief Investment Officer. In 2015, he founded Key Square Group, his latest investment firm, where he worked until being nominated by Trump for Treasury Secretary.

“My work in the financial sector has given me a deep understanding of the markets,” he said. “We must have secure supply chains. And we must be careful with sanctions so the dollar remains the world’s reserve currency,” he said in his opening statement.

“Under Trump, we will implement a pro-growth strategy, reducing taxes, and unleash greater energy production in order to make America the most popular destination in the world for starting and growing a business,” Bessent said.

“We must use all the tools available to realign the economic system to better serve the interests of working Americans. For too long, we allowed for distortive trade policies. Trump was the first president to realize that has to change,” he said, adding, “I will work with Trump to change that so we can usher in a new, balanced era of prosperity.”

MADE IN AMERICA.

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