US Treasury Secretary Scott Bessent expressed support for President Donald Trump’s economic policies at the Milken Institute Global Conference in Los Angeles on May 5, 2025.

He said the administration’s focus on tariffs, tax cuts, and deregulation to stimulate long-term investment in the US economy.

Bessent said that the economic agenda aims to encourage companies to invest in the US by building factories and increasing domestic production.

He noted that tax incentives, including credits for research and 100% expensing for equipment and factory construction, are designed to accelerate investment in key sectors.

🔗 Source: Reuters

🧠 Food for thought

1️⃣ Economic data challenges the “interlocking engine” theory of tariffs and tax cuts

Multiple economic analyses suggest tension rather than synergy between Trump’s tariffs and tax cuts, contradicting Secretary Bessent’s portrayal of a coherent economic strategy.

The Tax Foundation found that tariffs are projected to reduce after-tax incomes by an average of 0.30%, with middle-income households potentially losing about $146 in disposable income 1.

Federal Reserve estimates showed tariffs cost the average American household US$414 in 2018, with projections rising to US$831 as tariffs increased, potentially offsetting much of the US$1,300 average benefit from the Tax Cuts and Jobs Act 2.

The Penn Wharton Budget Model projects Trump’s tariff policies could generate over US$5.2 trillion in revenue over ten years but would simultaneously reduce GDP and wages significantly 3.

This economic contradiction explains why the Tax Policy Center concluded many low and middle-income households might see their tax cut benefits effectively canceled out by higher consumer prices resulting from tariffs 4.

2️⃣ Historical evidence shows tariffs typically reduce investment, contradicting Bessent’s claims

Secretary Bessent’s assertion that tariffs will drive long-term investment contrasts with extensive economic research showing opposite outcomes.

Economic modeling by the Tax Foundation projected that tariffs would lead to a long-term GDP reduction of approximately US$30.4 billion and a loss of about 94,300 full-time equivalent jobs 1.

The Penn Wharton Budget Model specifically found that economic policy uncertainty due to tariffs could reduce investment by approximately 4.4% in 2025, as businesses delay spending decisions 3.

Historical analysis shows that tariffs typically increase consumer prices, decrease economic efficiency, and reduce overall economic growth—creating the opposite effect of what Bessent described 5.

This pattern is consistent across multiple administrations, with data showing that trade liberalization has historically led to economic benefits, while protectionist policies typically reduce productivity and increase consumer prices 6.

3️⃣ Deregulation presents a complex economic picture beyond Bessent’s optimistic framing

While Bessent highlighted deregulation as a key contributor to economic growth, research shows its effects are more complicated and sector-dependent.

Deregulation in energy and financial services may increase short-term profitability, but historical evidence links reduced oversight to increased risk of economic and environmental disasters 7.

The financial crisis of 2008 serves as a cautionary example of how deregulation can lead to significant economic harm when regulatory guardrails are removed without adequate replacements 7.

Industry analyses project that while Trump’s deregulatory agenda may boost traditional industries like fossil fuels and banking, it creates macroeconomic uncertainty that could offset growth benefits 8.

Economic assessments indicate that different sectors will experience varying effects from deregulation, with winners and losers across industries rather than the uniform benefits suggested in Bessent’s remarks 9.