Trump’s Treasury pick: what message to the markets?

A former banker, a congressman, a former captain of industry: which one President-elect Donald Trump chooses as the US Treasury secretary will send a key message about his administration’s economic plans.

His signature will be on the back of the US currency, but more importantly the Treasury secretary is a key player in financial regulation, guarantor of the world’s largest reserve currency, architect of economic relations with China and leader of the fight against the financing of terrorism.

Several names have circulated in the race to replace Jack Lew, President Barack Obama’s finance minister since 2013, but two seem to stand out: former Goldman Sachs investment banker Steven Mnuchin, 53, and the conservative Congressman Jeb Hensarling, 59.

JPMorgan boss Jamie Dimon, 60, and Blackstone real estate investor Jonathan Gray, 46, reportedly rebuffed overtures by Trump’s transition team.

Industrialist Daniel DiMicco, 66, former head of Nucor Steel and “Made in America” champion, also has been mentioned for the post but could instead lead the foreign trade portfolio.

The range of capabilities of the candidates under consideration are “reflective of the breadth and depth of the Treasury agenda today,” said Robert Kimmitt, a deputy Treasury secretary in George W. Bush’s administration.

– Crisis management –

Trump’s plans for the economy are vast. He plans to reform the Dodd-Frank financial regulation law and campaigned for major corporate tax cuts, while promising massive infrastructure spending and the return of offshored jobs to the United States.

Treasury also is at the center of the fight against the financing of terrorism, including imposing sanctions against Iran and North Korea. And the department oversees one of two regular economic dialogues with China, made more interesting by the fact Trump has vowed to take a firmer stance against the country.

Kimmitt wonders if this dialogue will be able to continue, since just two months after Trump takes office, Treasury will have to submit to Congress its semi-annual report on foreign exchange policies, which in particular focuses on China.

That is the vehicle the administration would use to declare China a currency manipulator, something it has escaped in recent years, although economists say the country now is in fact propping up the yuan.

David Wessel, economic analyst at the Brookings Institution, said that in the wake of the 2008 Great Recession, it will be crucial that the next Treasury secretary have “the capacity to deal with a financial crisis, whether it’s caused by a big banking mess, even the financial aspect of a terrorist strike.”

But he warned, “One thing we’ve learned is that you don’t want somebody who has to learn on the job.”

– Restraining Trump –

Given the unpredictable personality of the new president, the ideal candidate will also have to show diplomacy and authority.

“Given the nature of Donald Trump the Treasury secretary is going to have an important role in both restraining some of Trump’s impulses and also in interpreting what Trump really means to the rest of the world,” Wessel told AFP.

“We have already seen how confusing some of his statements can be. That can be very damaging for the confidence in the economy, it can cause unwelcome volatility on financial markets,” he said.

So ideally this key position will be filled by someone “who can both influence the president and speak for him with authority so that we don’t have unnecessary misunderstandings.”

Another key role will be managing relations with Congress. This could make Texas Representative Hensarling, chairman of the influential House Financial Services Committee, a frontrunner since the promised tax cuts will widen the deficit and inflate the debt.

It will be difficult for a candidate to check all the boxes for the Treasury post, to be a Wall Street specialist and a negotiator with Congress or especially a liaison with the president himself, Wessel cautions.

Among the leading names, Mnuchin, the Goldman Sachs veteran, will certainly draw criticism if selected, he said, since it would be paradoxical if Trump, who campaigned against the establishment, chooses a Treasury secretary who is a Wall Street insider.