Former US Treasury Secretary Warns: Budget Deficit More Worrying Than Trade Deficit

On Wednesday (May 21) local time, former US Treasury Secretary Steven Mnuchin expressed greater concern over the US's widening budget deficit compared to trade imbalances, and called on the Trump administration to prioritize addressing fiscal issues.

"I'm very concerned," Mnuchin said during a panel discussion at the Qatar Economic Forum on Wednesday. "For me, the budget deficit is a more serious issue than the trade deficit. So I tend to support cutting spending, which is a very important thing."

Mnuchin served as US Treasury Secretary during Trump's first term (2017-2021). Prior to that, he worked at Goldman Sachs for 17 years and had experience founding multiple hedge funds. After leaving office, Mnuchin returned to his roots, establishing Liberty Strategic Capital in 2021, adopting a private equity model.

Mnuchin's remarks came as US fiscal issues became the focus of financial markets, with US Treasury yields surging, thereby putting pressure on US stocks.

Moody's downgraded the US sovereign credit rating from the highest grade, Aaa, by one notch to Aa1 last Friday, aligning with the other two major rating agencies.

The Trump administration is attempting to pass a tax reform bill, but it has faced opposition from both Democrats and some conservative Republicans in Congress. Meanwhile, investors are concerned that Trump's bill will exacerbate the US debt problem.

According to estimates by the US Congressional Budget Office (CBO), the bill would increase the US deficit by $3.8 trillion.

Although Mnuchin acknowledged the impact of Moody's downgrade decision on the US Treasury market, he insisted that the US remains the world's safest sovereign borrower.

"Regardless of what the rating agencies say, I still think we are AAA-rated," Mnuchin said. "I still prefer to buy US Treasuries over any other so-called AAA assets in the market."

Mnuchin warned that, against the backdrop of the US Fed's pause in interest rate hikes, combined with the huge deficit the US government must shoulder, it may continue to put upward pressure on US Treasury yields.

Mnuchin predicted that, despite "still having some issues to resolve," the tax reform bill will make progress early this summer.