Bessent highlights Trump economy, warns China has 'done a lot of kicking lately'

• GDP growth slowed to 1.5% annualized in Q1 from 2.1% previously, but Bessent called the number 'very noisy' due to technical factors like Strategic Petroleum Reserve releases and expects full-year growth 'substantially above 2%'
• Core PCE inflation declined to 3.3% in June from 3.4% in May, with annual PCE slowing to 3.7% from 4.1%, though both remain well above the Fed's 2% target
• Bessent warned China has 'done a lot of kicking' beneath the surface despite good relations between Trump and Xi, citing concerns over restricted rare earth flows and 'large-scale distillation' of American AI models into Chinese systems

Summary: Bessent Discusses U.S. Economy and Rising China Tensions

Key Economic Data:

Treasury Secretary Scott Bessent addressed economic concerns following Thursday's GDP report showing growth slowed to 1.5% annualized in Q1, down from 2.1% previously. Bessent dismissed this as "technical noise," citing Strategic Petroleum Reserve releases that impacted the figure, and projected GDP will exceed 2% for the full year.

The Federal Reserve's preferred inflation gauge, the Personal Consumption Expenditures (PCE) index, showed improvement in June, declining to 3.7% annually from 4.1% in May. Core PCE dropped to 3.3% from 3.4%, though both remain above the Fed's 2% target. Bessent emphasized positive trends in core and service inflation, while noting energy volatility.

China Relations:

Bessent issued pointed warnings about deteriorating U.S.-China relations, particularly regarding artificial intelligence and rare earth minerals. Using a "badminton game" metaphor, he stated Chinese leaders maintain cordial surface relations with President Trump and Xi Jinping, but "under the water, the Chinese seem to have done a lot of kicking lately."

Specific Concerns:

• Restricted flow of rare earth minerals critical for advanced technology and military hardware
• Large-scale "distillation" (theft) of American AI intellectual property
• Chinese AI models containing U.S. tech company watermarks

Market Implications:

Bessent confirmed the U.S. maintains a "substantial" AI advantage over China but emphasized need for cooperation on preventing non-state actors from accessing powerful models. The administration signaled willingness to "push back" and retaliate if Chinese actions continue affecting U.S. businesses, potentially escalating tech sector tensions between the superpowers.