U.S. Treasury Secretary Scott Bessent described America's reciprocal tariffs as a “melting ice cube,” suggesting they could be reduced or eliminated if the nation's trade deficit narrows.
Domestic Production Key To Lowering Tariffs
On Thursday, in an interview with Nikkei, Bessent said, “Over time, the tariffs should be a melting ice cube,” meaning that they will continue to go down, even melt away completely, eventually.
Bessent said the main objective is “to rebalance” the current account deficit, which stood at $1.18 trillion in 2024, by far the largest among major economies.
“If production comes back to the U.S., then we’ll be importing less. So, we’ll rebalance,” he said, pointing to domestic manufacturing gains as a condition for lowering tariffs.
Bessent added that tariffs serve multiple purposes beyond trade rebalancing, including generating tax revenue, shielding domestic industries, and exerting pressure in foreign policy negotiations. As an example, he cites President Donald Trump’s push to stop India from buying Russian crude oil.
Economists Have Dismissed The Theory
This isn’t the first time that Bessent has pitched the “melting ice cube” theory, and the last time he proposed it in an interview, leading economist and former Treasury Secretary Larry Summers pushed back against it.
Summers outright dismissed the theory, saying that it wasn’t consistent with any economic school of thought. “If the tariffs are not permanent, why will any business relocate a long-term facility to the U.S.?” he asks.
“I have been exposed to a lot of economic theories in my time,” he added. “I have not been able to relate much of what Bessent and his colleagues are saying to any school of economic thought.”
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