Hypothesis: Budget Math Suggests Big Tariffs Are Coming This week we learned that Treasury Secretary Bessent is trying to get Trump to change his scorecard for the success of his economic policies from a higher stock market to a lower 10 year yield. Lowering borrowing costs for all Americans through deficit spending reductions, supply side reform, energy production and deregulation will create non-inflationary growth and real wage gains that benefits Main Street. 10 year yields are the benchmark from which most American citizens and companies borrow so having an economic agenda that drives down borrowing costs for all (incl the federal govt) is a much better goal than myopically obsessing about how the stock market is doing especially as stock price momentum has increasingly become disconnected from the actual economy. It is also better to focus the public's attention on 10 year yields which Trump can help to control rather than on the Fed Funds Rate which the Fed controls. Bessent has likely explained that arguing with Powell about cutting rates does nothing for average Americans, so it's better to just stop doing that, especially now given how the Fed's most recent interest rate cutting cycle has actually led to even higher borrowing costs, with 10 year yields are nearly 100bps higher than when the Fed started cutting rates in September. Credit card rates, auto loans and mortgage rates are higher as a result. Bessent has likely also informed Trump that recent Fed rate cuts have led to a re-acceleration of inflation momentum in the economy, something Trump has vowed to help eliminate, thus the Fed is already making his job harder. However, since Bessent has tried to put this line in the sand on the 10-year yield as scorecard for success, it suggests that the upcoming budget process really cannot lead to significantly higher deficits. There will have to be significant pay fors in order to fund Trump's signature tax cut plan. Deficit reduction is a central part of his 3-3-3 plan, reducing deficits from 6-7% of GDP now to 3% by the end of the term. Lowering 10 year yields is done via guiding term premiums lower, which means controlling the market's fear about future inflation which he (and others) have largely said is the fault of incessant government spending and deficits. This has been on the mind of investors over the last 6 months post the Fed's rate cuts and the exorbitant deficit spending the Biden administration did on its way on the way out the door. If Trump wants to get another "big beautiful bill" on tax cuts, which Bessent has said are table stakes for their administration to pass, there needs to ways to pay for the cuts. The deficit cannot continue to expand like it has otherwise 10 year yields will rise. Many in the Freedom Caucus have never before voted for any extension of the debt ceiling so they need to be given some credible evidence that deficit expansion will not occur in order to deliver the President's bill. DOGE spending cuts won't be big enough to move the needle if they won't touch going entitlements and defense. While the headlines are nice because there are thousands of line items that can be eliminated, the overall amount of discretionary spending in the budget that is available to be cut isn't really enough to make a sustainable dent on its own in the deficit. So it seems like the only real way to bridge this gap to fund tax cuts without deficit expansion is TARIFFS. it is very clear why tariffs should be used here to help rebalance global trade and help bring private sector manufacturing jobs back to America. And importantly here, they will help provide revenues to the US govt to finance tax cuts and the mandatory govt spending needs on entitlements and defense Expect tariffs to be front and center in the next couple weeks as the budget process comes to conclusion. The market thinks Trump will continue to cave on tariffs but the math suggests he has no other choice but to use them