Evelyn Reynolds

On Monday, Trump said on social media site Truth Social that he would impose an additional 10% tariff on goods from China and a 25% levy for Canada and Mexico.
The three countries in question account for 43% of U.S. goods imports, and the tariffs would result in slightly less than $300 billion in revenue annually, according to Goldman Sachs calculations.
It remains to be seen whether the tariffs will actually be implemented at the levels Trump proposed or what exceptions might be made.

President-elect Donald Trump speaks at the U.S.-Mexico border on August 22, 2024 south of Sierra Vista, Arizona. 
Rebecca Noble | Getty Images News | Getty Images

The latest tariff proposal from President-elect Donald Trump would likely put upward pressure on inflation in the United States, according to Goldman Sachs.
On Monday, Trump said on social media site Truth Social that he would impose an additional 10% tariff on goods from China and a 25% duty for Canada and Mexico. Goldman’s chief economist, Jan Hatzius, said in a note that the proposed levies would result in a notable increase for consumer prices in the U.S..

“Using our rule of thumb that every 1 [percentage point] increase in the effective tariff rate would raise core PCE prices by 0.1%, we estimate that the proposed tariff increases would boost core PCE prices by 0.9% if implemented,” Hatzius said.
“PCE” refers to the personal consumption expenditures price index, which is the preferred inflation reading of the Federal Reserve.
A tariff-linked increase in core PCE could scramble the calculations around Fed rate cuts. The October PCE reading is due out Wednesday, and it’s expected to show a year-over-year increase of 2.8% for the core, according to economists surveyed by Dow Jones. In other words, inflation is still above the Fed’s target of 2%, and the tariffs could widen that gap.
Traders have been dialing back their expectations for Fed rate cuts in 2025, though it is unclear how much of that is due to election results versus a resilient U.S. economy. Fed Chair Jerome Powell has said the central bank will consider the impact of tariffs and other fiscal policy changes on the direction of inflation once the details become clear.
To be sure, it remains to be seen whether the tariffs will actually be implemented at the levels Trump proposed — or what exceptions might be made. The president-elect suggested in his social media post that the tariffs were conditional on changes to immigration policy and drug enforcement, specifically fentanyl. Some of Trump’s advisors and supporters have characterized the tariffs he proposed during the campaign as a bargaining position rather than a set policy.

Hatzius, for his part, said it seems more likely that Canada and Mexico would avoid across-the-board tariffs than China.
The three countries in question account for 43% of U.S. goods imports, and the tariffs would result in slightly less than $300 billion in revenue annually, according to Goldman Sachs calculations.

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Markets looked favorably on President-elect Donald Trump’s presumptive nominee for Treasury secretary, with equity futures rising and Treasury yields falling.
The move to put hedge fund magnate Scott Bessent in the position now held by Janet Yellen sent a message that Trump wants someone with strong market credentials as well as a similar philosophy for the role.
“President Trump has some very good ideas, but I guarantee you, the last thing he wants is to cause inflation,” Bessent told CNBC earlier in November.

Scott Bessent, founder and chief executive officer of Key Square Group LP, during an interview in Washington, D.C., June 7, 2024.
Stefani Reynolds | Bloomberg | Getty Images

The U.S. stock market appeared to cheer President-elect Donald Trump’s presumptive nominee for Treasury secretary, who told CNBC earlier in November that he sees an era of strong growth and lower inflation ahead.
Stock market futures rose and Treasury yields tumbled early Monday following the announcement late Friday that Trump would pick Scott Bessent, a familiar Wall Street figure, to take on his administration’s most important economic role.

The move sent a message that Trump wants someone with strong market credentials as well as a similar philosophy for the role.
“This pick should please markets given Bessent’s in-depth understanding of financial markets and the economy – in particular the bond market the Trump administration will need to keep on [its] side if it is to advance its agenda successfully,” Sarah Bianchi, Evercore ISI’s chief strategist of international political affairs and public policy, and colleagues wrote in a note.
Bianchi added that markets “couldn’t have done much better” than Bessent.
Since Trump’s victory earlier this month, in which he also carried a red wave that flipped the Senate to Republicans and retained GOP control of the House, markets have been mostly positive, albeit volatile. In particular, bond yields have scaled higher, with some interpreting the move as anticipating another leg up for inflation while others see it as traders pricing in stronger growth.

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10-year Treasury

In a CNBC interview the day after Trump’s victory, and before the announcement that he would be nominated, Bessent said he expected the new president’s agenda to help bring down inflation while simultaneously stimulating growth.

“The one thing he doesn’t want is a replay of what we’ve just got under Biden-Harris,” Bessent said.
“President Trump has some very good ideas, but I guarantee you, the last thing he wants is to cause inflation,” he added. “I don’t think the bond market is worried about Trump 2.0 inflation. I think what you’re seeing is a healthy move geared toward a growth impetus.”

Though some investors worry that the tariffs Trump has talked about implementing could cause inflation, Bessent said he favors that they be “layered in” so as not to cause anything more than short-term adjustments.
“If you take that price adjustment coupled with all the other disinflationary things President Trump is talking about, we’re going to be at or below the 2% inflation target” that the Federal Reserve prefers, he said.

Moving in threes

Bessent favors a three-pronged approach that addresses worries over the ballooning national debt and deficits: growing the economy at a 3% rate, knocking down the budget deficit to 3% of gross domestic product — less than half where it stands now — and adding three million barrels a day in oil production.
Wall Street commentary was almost universally positive.
Perpetual market bull Tom Lee, head of research at Fundstrat Global Advisors, noted that “Bessent lends substantial economic and market credibility to the incoming cabinet.”
“In our view, this reinforces the market’s perception of a ‘Trump put’ — that is, the incoming White House wants equities to perform well,” Lee wrote.
Early indications are that Bessent, who had a long history of supporting Democratic causes before backing Trump during his first run in 2016, should face little trouble getting confirmed.

Sen. Elizabeth Warren, D-Mass., signaled perhaps some trouble from the political left, saying in a statement over the weekend that Bessent’s “expertise is helping rich investors make more money, not cutting costs for families squeezed by corporate profiteering … I do not know if Mr. Bessent will transfer his loyalty from Wall Street investors to America’s workers, but I am willing to work with anyone to advance the interests of working families.”
However, Washington policy expert Greg Valliere, chief U.S. policy strategist at AGF Investments, said Bessent should “sail to confirmation” and would join current Sen. Marco Rubio, whom Trump intends to nominate as secretary of State, “in the moderate wing of the Cabinet, with support in both parties.”
Bessent “could play an important counterbalance to Commerce Secretary nominee, Howard Lutnick, as Trump pursues an aggressive trade agenda,” wrote Ed Mills, Washington policy analyst at Raymond James.
“The more President Trump’s agenda can be achieved through economic growth versus significant budget cuts, we would expect the market to view that as a positive,” Mills said. More

The cost of Neom has been estimated to be as high as $1.5 trillion.
This year, however, has seen a sharp change in direction in terms of spending for the kingdom.
“Saudi Arabia has poured tens of billions into projects that have yet to hint of any financial returns,” one financier told CNBC.

Digital render of NEOM’s The Line project in Saudi Arabia
The Line, NEOM

In Saudi Arabia’s northwestern desert, a sprawling construction site replete with cranes and pile drivers sits encircled by a recently-built road. A pair of tracks cuts through the site like deep gashes through the sand, comprising the spine of what planners say will be a high-speed rail system.
The skeletal infrastructure forms the foundations of The Line, a multi-billion dollar high-tech city that its architects say will eventually house 9 million people between two 106-mile long glass skyscrapers more than 1,600 feet high.

The project, whose estimated cost is in the hundreds of billions, is just one of the hyper-futuristic venues planned in Neom, the brainchild of Saudi Crown Prince Mohammed bin Salman and a region that the kingdom hopes will bring millions of new residents to Saudi Arabia and revolutionize living and technology in the country. It’s a core pillar of Vision 2030, which aims to diversify the Saudi economy away from oil revenues and create new jobs and industries for its burgeoning young population.
The cost of Neom has been estimated to be as high as $1.5 trillion. In the years since it was announced, Saudi Arabia’s Public Investment Fund, the mammoth sovereign wealth fund now overseeing $925 billion in assets, has poured billions into overseas investments, with ever-increasing waves of foreign investors flying to the kingdom to raise cash.
This year, however, has seen a sharp change in direction in terms of spending, with a stated emphasis on keeping investments at home along with reports of cutting costs on megaprojects like those in Neom. The changes come as the Saudi deficit grows and the outlook for oil demand, along with global oil prices, sees sustained lows.

Construction for The Line project in Saudi Arabia’s NEOM, October 2024
Giles Pendleton, The Line at NEOM

That begs the question: does Saudi Arabia have enough money to meet its lofty goals? Or will it have to be more flexible to make its spending trajectory sustainable?
One Gulf-based financier with years of experience in the kingdom told CNBC: “The PIF’s pivot towards domestic investments, widely acknowledged but now officially admitted, suggests that there is still a lot of spending needed. Saudi Arabia has poured tens of billions into projects that have yet to hint of any financial returns.”

The financier spoke anonymously as they were not authorized to speak to the press.
Andrew Leber, a researcher at Tulane University who focuses on the political economy of the Middle East, believes that the current pace of spending won’t last.
“The number of ‘we pay up front and hope for economic returns later’ giga projects that are currently underway is not sustainable,” Leber said.
“With that being said,” he added, “the Saudi monarchy has shown itself to be somewhat flexible whenever economic realities assert themselves. I do think that eventually, a number of projects will be quietly shelved in order to bring its fiscal outlays back into greater sustainability.”

Digital render of NEOM’s The Line project in Saudi Arabia
The Line, NEOM

Saudi Arabia in October cut its growth forecasts and raised its budget deficit estimates for the fiscal years 2024 to 2026 as it expects a period of higher spending and lower projected oil revenues. Real gross domestic product is now expected to grow 0.8% this year, a dramatic drop from a previous estimate of 4.4%, according to the ministry of finance.  
The kingdom’s economy also swung dramatically from a budget surplus of $27.68 billion in 2022 to a deficit of $21.6 billion in 2023 as it ramped up public spending and decreased oil production due to its OPEC+ supply cut agreement. Its government forecasts a deficit of $21.1 billion for 2024, projecting revenue at $312.5 billion and expenditures at $333.5 billion.
Saudi authorities expect that the budget will remain in deficit for the next several years as it pursues its Vision 2030 plans, but they add that they are fully prepared for this.

“Our non-oil revenues have grown significantly, now it covers about 37% of expenditure. That’s a significant diversification, and that gives you a lot of comfort that you can maneuver and be stable despite the fluctuation in oil price,” Saudi Finance Minister Mohammed Al-Jadaan told CNBC in October. “Our aim is to make sure that our plans are stable and predictable.”
“We are not going to blink, we have significant fiscal resource under our disposal, and we are very disciplined in our fiscal position,” the minister said.
Saudi Arabia has an A/A-1 credit rating with a positive outlook from S&P Global Ratings and an A+ rating with a stable outlook from Fitch. That combined with high foreign currency reserves — $456.97 billion as of September, a 4% percent increase year-on-year, according to the country’s central bank — puts the kingdom in a comfortable place to manage a deficit, economists told CNBC.

Riyadh is successfully issuing bonds, tapping debt markets for more than $35 billion so far this year. The kingdom has also rolled out a series of reforms to boost and de-risk foreign investment and diversify revenue streams, which S&P Global said in September “will continue to improve Saudi Arabia’s economic resilience and wealth.”
When asked if the kingdom’s spending trajectory is sustainable, Al-Jadaan replied: “Absolutely, yes,” adding that the government recently published its numbers for the next three years and that “we think it is very sustainable.”
Still, many analysts outside the kingdom, as well as individuals working within the kingdom and on NEOM projects, are skeptical of the megaprojects’ feasibility. Reports that some projects have been dramatically cut down — in the case of the Line, its size target slashed from 106 miles to 1.5 miles and population target down from 1.5 million by 2030 to less than 300,000 — attest to that concern on a higher level.

Neom executives acknowledge that the current phase of work on The Line is for a building length of 1.5 miles — which would still make it the longest building in the world. However, the eventual goal of 106 miles has not changed, they say, stressing that cities are not built overnight and that construction is continuing apace.
For Tarik Solomon, chairman emeritus at the American Chamber of Commerce in Saudi Arabia, “it’s promising to see transparency and some project cutbacks.”
“The Kingdom’s rising external borrowing reflects challenges with Vision 2030 feasibility,” he told CNBC.
“Though debt remains manageable at 26.5% of GDP, continued small pressures add up, underscoring the need for fiscal discipline and achievable goals.”
Solomon pointed to the desire of many Saudi residents for improvements to the infrastructure they use in their daily lives — like Riyadh’s public transport, network connectivity, schools, and health care.
“The road to resilience for Saudi Arabia isn’t in figuring out ski slopes in the desert but in building with innovation, complexity, and the courage to pursue what’s truly impactful,” he said. More