Beyond Tariffs: US Begins Leveraging Financial Power to Pursue Interests

US Treasury Secretary Scott Bessent advocates for using US financial power as a foreign policy tool. Washington can leverage the government balance sheet, financial support, currency interventions, and trade policies to bolster American interests while supporting nations viewed as strategic allies.

Speaking at the SMU Cox School of Business, Bessent stated that the US government could utilize the nation's financial capacity to achieve specific foreign policy objectives. A key focus is expanding the network of US allies, particularly within the Western Hemisphere.

Argentina serves as an example of this strategy. The US government previously provided a multi-billion-dollar support package to help stabilize Argentina's currency and back the economic policies of President Javier Milei's administration. Bessent believes the Milei administration is implementing sound economic policies that merit Washington's support.

Bessent’s statement serves as an open acknowledgment that President Donald Trump’s administration is willing to use US financial resources to influence economic and political developments abroad. Beyond direct support, the Trump administration has also employed tariffs as a foreign policy instrument.

Bessent also touched upon the joint US-Japan intervention on July 31 to purchase yen. This rare move was taken to prevent a sharp depreciation of the yen and pressure on Japanese government bonds from escalating into broader disruptions in global financial markets. He also indicated that Washington has a solid understanding of the policy direction of both the Bank of Japan and the Japanese government.

This approach suggests that US financial policy is likely to become increasingly integrated with Washington’s geopolitical strategy. For markets, the use of the dollar, Treasuries, tariffs, sanctions, liquidity support, and currency interventions as foreign policy tools could heighten investor sensitivity to US government decisions—particularly as geopolitical and global trade tensions rise again.

Market Impact:

This should not be interpreted as Bessent intending to immediately "play the Treasury card" tonight. His statement reflects a broader stance: the US is willing to use financial power to achieve geopolitical goals. Examples of this are already evident in the aid to Argentina, the yen intervention, and the use of tariffs. For the US dollar, the impact could cut both ways. The dollar’s ​​status and the depth of the Treasury market are sources of Washington’s strength, meaning the effective use of financial instruments could reinforce US dominance. However, if other nations grow increasingly concerned about the "weaponization" of the US financial system, it could—in the long run—drive a diversification of reserves away from the dollar.

The outlook for gold is quite interesting. The more finance is employed as a geopolitical tool, the greater the incentive for central banks and investors to diversify into assets free from sovereign credit risk—such as gold. Thus, over a long-term horizon, this narrative tends to support gold.

However, current gold price movements do not yet reflect this as a primary catalyst. Gold remains far more sensitive to Treasury yields, the US dollar, oil prices, PPI/CPI data, and Federal Reserve interest rate expectations. Should Bessent’s statements evolve into concrete new policies—such as major financial sanctions, currency interventions, or the strategic use of Treasuries—the impact on gold could be significantly greater. (CP)