U.S. Treasury Secretary Bessent Says China Has More to Lose As Tariff War Escalates, Investors Disagree

U.S. Treasury Secretary Scott Bessent on Tuesday declared the United States holds a clear advantage in the increasingly fraught trade dispute with China, brushing off Beijing’s retaliation and portraying the latest escalation as a bluff in a game it cannot win.

“I think it was a big mistake, this Chinese escalation, because they’re playing with a pair of twos,” Bessent said during a CNBC Squawk Box interview. “What do we lose by the Chinese raising tariffs on us? We export one-fifth to them of what they export to us, so that is a losing hand for them.”

His remarks came on the eve of a fresh wave of tariff increases targeting China and dozens of other trading partners. The duties, described by the administration as “reciprocal tariffs,” are meant to pressure countries into fairer trade arrangements, Bessent said, while jumpstarting U.S. manufacturing and generating new revenue streams for the federal government.

“If we put up a tariff wall, the ultimate goal would be to bring jobs back to the U.S. But in the meantime, we will be collecting substantial tariffs,” he said. “There should be some level of symmetry between the taxes we begin taking in with the new industry from the payroll taxes as the tariffs decline.”

According to Bessent, the administration is already seeing signs of success. Japan, he said, has moved to the front of the line in initiating talks, and the White House expects several more countries—especially those running large trade surpluses with the U.S.—to follow.

“I think you are going to see some very large countries with large trade deficits come forward very quickly. If they come to the table with solid proposals, I think we can end up with some good deals.”

However, the idea that trade deficits are inherently bad and that tariffs are the right response is facing sharp criticism, not just abroad but also within U.S. policy circles. While the Trump administration argues that the tariffs are aimed at correcting long-standing trade imbalances, economists and trade analysts have pointed out that the U.S. economy has, in fact, flourished over decades of trade deficits.

Tom Giovanetti, President of the Texas-based Institute for Policy Innovation (IPI), noted that trade deficits have coincided with extraordinary growth.

“The United States has run trade deficits for 48 straight years, during which time the U.S. economy has grown by 255% in real terms,” Giovanetti said. “Decades of trade deficits have corresponded with increases in manufacturing output, wealth, and household incomes.”

He argued that the trade imbalance narrative misses the bigger picture: “In the United States, GDP per capita has increased more than in our top trading partners like Canada, China, the European Union, Japan, Korea, and Mexico, even though we tend to run trade deficits with them.”

Echoing that view with more pointed criticism, former Treasury Secretary and Harvard economist Lawrence Summers dismissed the Trump administration’s trade philosophy as “utterly confused.”

“While I support open markets and oppose protectionism, that is not my problem with the @realDonaldTrump Administration policies,” Summers wrote on X (formerly Twitter). “The problem is an utterly confused and incoherent doctrine that says bilateral deficits are a sign a country is exploiting us. Trump’s economic theory makes Laffer curve look like Newton’s law of gravity and Modern Monetary Theory look like Darwin’s theory of evolution. They are far beyond wrong.”

Also, investors have noted that the belief that the U.S. has less to lose in the tariff war is far from the truth.

“OK mashed potato brains. Let’s do the math slowly for you,” said Spencer Hakimian, founder of Tolou Capital Management.

He noted that China exports $400 billion worth of goods and services to the U.S., and $3.3 trillion to the rest of the world every year. But the U.S. exported $3.2 trillion to the world in 2024. That number is certain to go down in 2025.

“If that number just goes down by 12%, which is a very conservative estimate, and the rest of the world looks to fill that with Chinese product (which is cheaper than the U.S. and has less profit built in), then the U.S. gets completely boxed out here,” he said. “China replaces us easily (just as they have since we peaked our trading relationship in 2018). We sell less. The rest of the world moves on rather quickly.”

“Thinking we are invincible and have all the cards is a fatal mistake.”

Despite the chorus of dissent, neither Washington nor Beijing appears willing to back down. In a fiery post on Truth Social late Monday, Trump slammed China’s latest move to impose 34% retaliatory tariffs on American goods, accusing Beijing of decades of “tariff abuse” and vowing a severe response if the new levies aren’t rolled back.

“Yesterday [Sunday], China issued Retaliatory Tariffs of 34%, on top of their already record-setting Tariffs, Non-Monetary Tariffs, Illegal Subsidization of companies, and massive long-term Currency Manipulation,” Trump wrote. “Despite my warning that any country that Retaliates against the U.S. by issuing additional Tariffs … will be immediately met with new and substantially higher Tariffs.”

He said that unless China withdraws the increase by April 8, the U.S. will impose a fresh round of 50% tariffs effective April 9 and cut off all trade talks with Beijing.

“Additionally, all talks with China concerning their requested meetings with us will be terminated! Negotiations with other countries, which have also requested meetings, will begin taking place immediately,” Trump added.

The high-stakes back-and-forth comes as the U.S. continues to wrestle with a nearly $300 billion trade deficit with China, which accounted for roughly one-third of the entire U.S. trade imbalance in 2024. While the Trump administration views this as a glaring sign of unfair trade, many believe the deficit is the natural byproduct of a consumption-driven economy and a globally integrated manufacturing system.

In Bessent’s telling, however, tariffs are both a short-term revenue engine and a long-term lever for reshaping global trade, especially when it comes to elusive non-tariff barriers such as currency manipulation and regional tax regimes.

“Everything is on the table,” he said. “The academic literature shows that it’s actually the non-tariff barriers which are harder, both harder to quantify and more insidious because they’re hidden, they’re obfuscated.”

Stock market futures, already trending higher on Tuesday morning, climbed further after Bessent’s appearance, suggesting that investors are at least temporarily confident in the administration’s aggressive stance. But with new tariffs set to kick in and China vowing to hold its ground, the world’s two largest economies are barreling toward an economic showdown with no end in sight.