Treasury Secretary Scott Bessent said in an interview on Thursday that he expects U.S. economic growth to accelerate later this year, with core inflation trending lower. At the same time, he cautioned that tensions with China over artificial intelligence and rare earth minerals have been intensifying.

Bessent spoke with FOX Business' Edward Lawrence shortly after the Bureau of Economic Analysis released its initial estimate of second-quarter GDP growth, which showed the economy expanded at an annualized rate of 1.5%, down from 2.1% in the first quarter.

The Treasury secretary characterized the headline GDP figure as misleading, saying it was "very noisy because a lot of that was very technical." He explained that drawdowns from the Strategic Petroleum Reserve, intended to ease energy prices, subtracted from GDP and that "core GDP was actually quite strong."

"We're seeing manufacturing is doing well, the jobs numbers are strong, the consumer is strong. So it was a technical adjustment in the number, I wouldn't worry about it," Bessent said. He added that he expects GDP to be "going to be substantially above 2% for the year."

Thursday also brought the release of the June personal consumption expenditures (PCE) index, the Federal Reserve's preferred inflation gauge. It slowed to an annual rate of 3.7%, down from 4.1% in May. Core PCE, which strips out volatile food and energy prices, also edged lower to 3.3% from 3.4% the previous month. Both readings remain well above the Fed's 2% target, a gap that continues to factor into debates over the timing and pace of future interest rate decisions.

Bessent emphasized the importance of the downward trend in core inflation, noting that the report showed both core and service-sector inflation declining. "Energy can be volatile," he acknowledged, adding, "We'll get to the other side of the Iran war, and you know it will come down."

On the subject of U.S.–China economic friction, Bessent was asked about disputes surrounding AI development and supplies of rare earth minerals, which are critical to advanced technology and military hardware. China controls the largest share of global rare earth mining and dominates the processing and refining capacity that turns those ores into materials usable in semiconductors, electric vehicle motors, and defense systems, a supply chain concentration that has long been a concern for U.S. policymakers across administrations.

"The good thing is the overall relationship comes down from the top, and President Trump, Xi Jinping have a very good relationship. But, you know, that's not an excuse for them to do things underneath the surface," Bessent said.

He used a vivid analogy to describe the dynamic: "Sometimes I describe it as a water polo match where our leaders could be hitting the ball back and forth, but under the water, the Chinese seem to have done a lot of kicking lately. And you know, if we have to, we'll kick back."

"We expressed our concern that the rare earths are not flowing as freely as they could, that they have taken some measures that are detrimental to U.S. businesses. And we said that if this continues, we will push back," he added.

Bessent also raised concerns about Chinese AI practices, saying, "We expressed our concern over Chinese AI that there is large-scale distillation" of American AI models making their way back into the United States. Distillation in this context refers to the practice of using outputs from a more capable AI model to train another model, effectively transferring knowledge without authorization from the original developer. "We like open source, but open source has got to be legal — it's not an excuse for IP theft."

When Lawrence asked whether the Trump administration had addressed the issue of U.S. tech companies' AI model watermarks appearing in Chinese models, Bessent confirmed that it had been raised at the staff level. He also struck a confident note on American competitiveness: "The good news is we are ahead of the Chinese in AI, I believe by a substantial amount, and they are number two."

Bessent concluded by emphasizing the necessity of ongoing dialogue between the two superpowers, saying it is important "because we want to make sure that non-state actors do not get a hold of a powerful model, that everyone increases their resiliency and that we cooperate towards those goals." The emphasis on preventing non-state actors from obtaining advanced AI models reflects a broader area of U.S.–China agreement that has surfaced in multilateral forums on AI safety.