International investors, CEOs worried about rule of law, politics in US, says Gene Sperling

Threats made against the US Federal Reserve, Congressional Budget Office, and Apple boss Tim Cook are leading investors to worry about soaring sovereign and legal risk in the US, according to Gene Sperling. 

The former economic adviser to both President Clinton and Obama said US exceptionalism is also challenged by record peacetime fiscal deficits and the President's tariff policies. 

"You see Tim Cook being threatened with 25% tariffs and that's not a great message to CEOs as it threatens the rule of law, or Elon Musk being told there'll be consequences if he supports political opponents," said Sperling. 

"So my message to the (US) administration is that if you want to give growth a chance before doing painful deficit things without being attacked by the bond vigilantes you should do more to show US integrity, faith in economic institutions, faith in our independence, faith in fair treatment to every company, regardless of politics or foreign headquarters."

Balancing budget, section 899 tax, worries about US

The lawyer and policymaker spoke to Morgan Stanley's Public Policy Strategist Ariana Salvatore at the Morgan Stanley Australia Conference and discussed the One Big Beautiful Bill Act's (OBBBA) spending and tax cuts. 

"I was there when [President] Clinton had balanced budgets," he said. "Now people can see fiscal deficits as far as the eye can see...I can imagine this being a big issue in the 2028 election.

"When I was in the Clinton White House, we brought down deficits to balance the budget, long term interest rates. When investment increased, you had 4% growth. And people said fiscal discipline really works after the financial crisis."

Specifically on OBBBA, Sperling told the Summit that the big issue for fiscal policy is the act's inability to raise sufficient revenue given income tax cuts. Rather than the cost savings such as those sought by the Department of Government Efficiency (DOGE). 

"The tax cuts are going at $US400 billion to $US500 billion a year," he said. "If you fired everybody [in the government] you might save $US150 billion a year. The big items in the budget are really revenues. 

"So the fight over the government and the size of departments is a real fight and it has significant implications for our research and how government works, but it's not a heavily substantive issue on fiscal consolidation

"A lot of people want to hope AI will lead to more growth I don't feel it'll suffice in the next few years."

Sperling added that President Trump's erratic behaviour ties back to international investors' worries about section 899 of OBBBA, which targets international investors by raising taxes on US sourced dividends and fixed income securities.

"You can’t just say American exceptionalism is the dollar being the world’s reserve currency...you have to ask why," he said. "It's based a lot on the integrity of our institutions and independence and rule of law. So, it is my hope that we help restore that image."

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