synopsis

Summers said China didn't make any consequential or significant change in its policies and that it was the U.S. that made a retreat from its extreme tariff policy.

Former Treasury Secretary Larry Summers praised Scott Bessent, who currently serves in that role under President Donald Trump’s administration, for successfully negotiating a trade deal with China.

While appearing on CNN’s “The Arena” with Kasie Hunt, Summers said the market got a valid signal that the Trump administration was backing off its tariff regime against China, which is extremely punitive to the U.S. economy.

After the U.S. and China agreed to suspend tariffs for 90 days, the U.S. market and risky bets rallied on Monday, trimming their year-to-date losses. 

Summers said the session’s trading aligned with the pattern since Liberation Day: “Whenever the commitment to the Liberation Day policies increases, markets go down. Whenever there's signs of backing off, markets go up.”

The economist, who served as the Treasury Secretary under former President Bill Clinton, felt that President Trump blinked. He said, “We had said that we were determined to impose these policies for an indefinite period. China didn't make any consequential or significant change in its policies.”

However, Summers applauded the actions taken by the Trump administration regarding the China trade deal. “Sometimes it's good to blink when you make a mistake; it's usually best to correct it and retreat, even if it's a little bit embarrassing,” he said.

The economist also lauded Bessent for his leadership in generating backoffs from the more extreme of policies, adding, "I think the administration is showing itself to be less committed to disastrous policies than I had feared they would be.”

“I give Secretary Bessent a great deal of credit for reading the signals from the markets and for prevailing in some of the internal political struggles.”

Summers delved into the possibility of a recession in light of the circumstances on the tariff front. He still sees recession odds at 50/50, perhaps a little lower.

“That is largely the reflection of the fact that the Administration appears to be turning the wheel, rather than driving the vehicle over a cliff,” the economist said.

Following the China trade deal, the Invesco QQQ Trust (QQQ) has cut its year-to-date losses to 0.51%. The SPDR S&P 500 ETF (SPY) is down 0.23%, while the iShares MSCI China ETF (MCHI) has gained about 18%.

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