US President Donald Trump’s decision to initiate a trade war and impose tariffs impacting the global economy prompted accusations of \u201cirrational economic policies\u201d\u2014a critique often heard in Turkey.<\/p>\n
According to this perspective, Trump was perceived as a reckless autocrat imposing tariffs out of sheer ignorance. Alternatively, as renowned \u201cnew Keynesian\u201d economist Paul Krugman stated, Trump was \u201ccrazy\u201d regarding trade, and his \u201cmalignant stupidity\u201d threatened the global economy.<\/p>\n
This analysis does not attribute vast knowledge or profound wisdom to Trump, as subsequent points will clarify. Furthermore, the method for determining the tariffs has been described as somewhat \u201cchildish.\u201d Additionally, this series will later delve into significant objections to \u201cTrumponomics\u201d and its inherent contradictions.<\/p>\n
However, certain complexities may lie beyond Trump’s personal grasp, necessitating his team of advisors. If not a mad autocrat, perhaps Trump resembles an uninformed elephant in a china shop\u2014useful, in this view, precisely for his capacity to disrupt the status quo.<\/p>\n
Consequently, there are indications suggesting some underlying \u201cintelligence\u201d behind events like the rapid evaporation of trillions of dollars from stock markets within a week. Historical parallels exist. In his memoirs, President Herbert Hoover recalled his Treasury Secretary during the Great Depression, Andrew Mellon, advising: \u201cLiquidate labor, liquidate stocks, liquidate farmers, liquidate real estate… [The Depression] will clean out the rot in the system. The high cost of living and the high level of living will fall. People will work harder and live more moral lives. Values will adjust and enterprising people will pick up the debris of less competent people.\u201d<\/p>\n
The White House summary accompanying the official announcement of global tariffs highlighted a familiar, ostensible policy rationale: the so-called globalization process, it argued, no longer served the interests of the US and American workers, particularly within the manufacturing sector. This justification aligned with efforts toward reshoring production and implementing domestic tax cuts.<\/p>\n
This, naturally, represents the surface narrative. Delving deeper, three figures emerge as prominent sources of \u201ceconomic wisdom\u201d within Trump’s White House: Stephen Miran, Chairman of the White House Council of Economic Advisers; Scott Bessent, Secretary of the Treasury; and Peter Navarro, Trade Representative.<\/p>\n
This article focuses on a 41-page report authored by Miran\u2014then a strategist at Hudson Bay Capital, a hedge fund managing $30 billion\u2014published in November, shortly after Trump’s election.<\/p>\n
In the memorandum, titled \u201cGuidelines for Restructuring the Global Trading System,\u201d Miran aimed to persuade \u201cmarkets\u201d of the feasibility of tariffs.<\/p>\n
Miran began, \u201cWe may be on the verge of a generational shift in the international trade and financial systems,\u201d noting that \u2018reforming the global trading system\u2019 and \u2018the desire to put American industry on a fairer footing vis-\u00e0-vis the rest of the world\u2019 had been a \u2018consistent theme\u2019 for Trump for decades.<\/p>\n
\u201cThere is a way in which these policies can be implemented without significant negative consequences, but it is narrow,\u201d the strategist stated, acknowledging the difficulty of the task.<\/p>\n
But here the core argument surfaces: \u201cEconomic imbalances are rooted in an overvalued dollar that prevents international trade from stabilizing, and this overvaluation is driven by inelastic demand for reserve assets. As global GDP grows, financing reserve assets and the defense umbrella becomes increasingly burdensome for the United States, with the manufacturing and tradable sectors bearing the brunt of the costs.\u201d<\/p>\n
This overvaluation, according to the argument, renders US exports less competitive, cheapens imports, and consequently undermines American manufacturing\u2014the fundamental points being made.<\/p>\n
This assessment of the dollar, I should note, is more prevalent than commonly assumed, a point discussed recently with economist Radhika Desai. Furthermore, reports indicate that Vice President JD Vance shared a similar perspective, attributing the dollar’s overvaluation to its global reserve currency status.<\/p>\n
As will be discussed, a consensus apparently exists between Miran and Bessent that tariffs alone are insufficient. Miran explicitly writes about desiring an \u201cadjustment\u201d\u2014specifically, an exchange rate realignment between the dollar and foreign currencies: \u201cWhile currency offsets can impede the harmonization of trade flows, they show that tariffs are ultimately financed by the tariff-subject country, whose real purchasing power and welfare are reduced, and the proceeds improve burden sharing to provide reserve assets.\u201d<\/p>\n
The implication is that the negative impacts of tariffs are offset because the burden shifts. According to Miran (who holds a Harvard PhD in economics), this mechanism would not harm the purchasing power of American consumers. Instead, as citizens of exporting nations targeted by US tariffs face reduced purchasing power due to currency shifts, their country effectively \u2018pays\u2019 the tariff burden, while the US Treasury gains the revenue.<\/p>\n
Miran stated, \u201cFrom a trade perspective,\u201d the dollar’s overvaluation stems \u201c\u2018largely because dollar assets function as the world’s reserve currency.\u2019\u201d This aligns with the argument attributed to JD Vance.<\/p>\n
Since the US supplies the world with reserve assets, demand exists for the dollar and US Treasuries independent of trade balancing needs or the optimization of risk-adjusted returns. These reserve functions facilitate international trade and offer a vehicle for substantial savings pools, frequently held for \u201cpolicy reasons\u201d (like reserve or currency management, or by sovereign wealth funds) rather than purely for yield maximization.<\/p>\n
Consequently, much of this reserve demand for dollars and US bonds is inelastic concerning economic or investment criteria. Miran provided an example: Treasury bonds purchased to guarantee trade between Micronesia and Polynesia are acquired irrespective of the US trade balance, recent employment data, or the relative yield of Treasuries compared to German Bunds [government bonds].<\/p>\n
Such phenomena, the advisor noted, reflect what can be termed a \u201cTriffin world,\u201d named after Belgian economist Robert Triffin. In this framework, reserve assets constitute a form of global money supply. Demand for these assets is driven by global trade and savings levels, rather than the reserve-issuing country’s domestic trade balance or investment appeal.<\/p>\n
Within this model, the US runs large current account deficits not primarily because it imports excessively, but rather because it\u00a0must<\/em>\u00a0import sufficiently to issue the US government bonds needed to supply reserve assets and thereby facilitate global growth.<\/p>\n According to Miran, reserve currency status yields three significant consequences for the issuing nation: somewhat cheaper borrowing costs, a more expensive currency, and the capacity to leverage the financial system for security objectives.<\/p>\n This overvaluation, Miran argued, imposes a heavy burden on the American manufacturing sector while simultaneously benefiting the economy’s financialized sectors, primarily advantaging wealthier Americans. The hedge fund manager’s critique of the financialization trend characterizing the past 40 years of capitalism sounds almost left-leaning.<\/p>\n Miran further clarified that the issue involves a \u201cresponse to a crisis.\u201d During crises, the dollar’s reserve nature places additional strain on manufacturing and export sectors. The dollar typically appreciates during recessions due to its \u201csafe\u201d haven status, while other currencies tend to depreciate during economic downturns.<\/p>\n Consequently, when aggregate demand declines, the difficulties faced by export sectors are exacerbated by a sharp erosion of competitiveness. This dynamic helps explain why US manufacturing employment often falls sharply during recessions and struggles to recover substantially afterward.<\/p>\n However, a contradiction arises: President Trump reportedly valued the dollar’s reserve status and even threatened punitive action against countries, notably the BRICS group, that might reduce their reliance on the dollar. How can this tension be reconciled? Miran proposed \u201ca set of policies to increase burden-sharing among trade and security partners.\u201d He elaborated: \u201cInstead of trying to end the use of the dollar as the global reserve currency, the Trump Administration could try to find ways to claw back some of the benefits that other countries derive from our reserve status. A redirection of aggregate demand from other countries to America, increased revenue to the US Treasury, or a combination of these could help America offset the rising cost of providing a reserve asset for a growing global economy. The Trump Administration is likely to increasingly intertwine trade policy and security policy, seeing the provision of reserve assets and the security umbrella as interdependent and approaching burden-sharing for them together.\u201d<\/p>\n As mentioned earlier (paragraph 25), reserve currency status has three key elements. One is the capacity to control financial flows. According to Miran, the negative consequences (like diminished export capacity) were historically balanced by the advantages of US dominance over global finance. This financial control conferred a \u201cgeopolitical advantage,\u201d allowing the US to pursue national security goals cost-effectively. The US provided a global defense shield for \u201cliberal democracies,\u201d receiving the benefits of reserve status in return. In essence, reserve status has long been interwoven with national security considerations.<\/p>\n Miran suggested that Trump was reacting to a perception that these arrangements had become burdensome for the US. \u201cThis connection helps explain why President Trump thinks other countries benefit from America in defense and trade at the same time: the defense umbrella and our trade deficits are linked through currency,\u201d the consulting economist wrote. He further explained: \u201cIn Triffin’s world, this [global] arrangement becomes more difficult as the United States’ share of global GDP and military power shrinks. As the economic burdens on America increase, with global GDP outstripping American GDP, it becomes more difficult for America to finance global security because the current account deficit grows and our ability to produce equipment is undermined. The growing international deficit is a problem because of the increasing pressure on the American export sector and the resulting socio-economic problems.\u201d<\/p>\n The US is either unable or unwilling to sustain the existing global arrangement and therefore seeks to alter it. This constitutes Miran’s first key point.<\/p>\n The US dollar functions as a primary reserve asset largely because America offers \u201cstability, liquidity, market depth and the rule of law.\u201d These attributes underpin the nation’s capacity to project power globally and to shape and defend the international order. This is Miran’s second key point.<\/p>\n The link between reserve currency status and national security is long-established. As the Trump administration sought to reshape the global trading system, these connections were expected to become even more salient. This represents the third key finding. Therefore, the situation entails more than simply a move toward economic isolation for the dollar and the US.<\/p>\n Both tariff and exchange rate policies, in this framework, aim to enhance the competitiveness of American manufacturing, thereby strengthening the industrial base and shifting aggregate demand and jobs from other countries to the US.<\/p>\n Miran emphasized that the goal was not to repatriate labor-intensive sectors like textiles from countries such as Bangladesh. Rather, the tariffs were intended to preserve American dominance in high-value-added industries, halt the further exodus of manufacturing, and create negotiating leverage. This leverage could be used to compel other countries to open their markets to American exports or to better protect American intellectual property rights. Key sectors linked to national security included semiconductors and pharmaceuticals.<\/p>\n Yet, the fundamental contradiction persists. Miran, however, expressed confidence in the Trump administration’s approach. Acknowledging the inherent tension, he wrote: \u201cDespite the dollar’s weight on the US manufacturing sector, President Trump has emphasized the value he places on its status as the global reserve currency and threatened to punish countries that move away from it. I expect this tension to be resolved through policies that seek to preserve the dollar’s status but improve burden sharing with our trading partners. International trade policy will seek to recapture some of the benefits to trading partners of our reserve status and link this economic burden sharing to defense burden sharing. Although the effects of Triffin will have a negative impact on the manufacturing sector, there will be attempts to improve America’s position in the system without destroying it.\u201d<\/p>\n Burden sharing: Pillar of restructuring<\/strong><\/p>\n In his inaugural speech as Chairman of the White House Council of Economic Advisers, Stephen Miran revisited the themes from his November report.<\/p>\n Miran elaborated on the specifics of burden sharing, arguing that other nations should shoulder a greater portion of the costs associated with the global \u201cpublic goods\u201d the US has historically provided.<\/p>\n Within the economic framework of Trumpism, as articulated by Miran, the United States was portrayed as a \u201csucker\u201d\u2014providing a global reserve currency and a worldwide defense umbrella without receiving adequate reciprocation from other nations.<\/p>\n \u201cPresident Trump has made it clear that he will no longer tolerate other nations freeloading on our blood, sweat and tears, whether in the area of national security or trade,\u201d President Miran said at the Hudson Institute.<\/p>\n He continued, \u201cWhile it is true that the demand for the dollar has kept our borrowing rates low, it has also distorted foreign exchange markets. This process has imposed unnecessary burdens on our companies and workers, making their products and labor uncompetitive on the global stage.\u201d<\/p>\n Miran acknowledged the benefits of financial hegemony but contended the associated burden on the US had become excessive. He argued that other nations invested in American assets and manipulated their currencies to gain export advantages. Furthermore, he attributed partial blame for the 2008 financial crisis to Beijing, asserting that China had fueled the preceding bubble by purchasing vast quantities of US mortgage-related debt.<\/p>\n Miran proposed five specific options for achieving burden-sharing:<\/p>\n First, other countries could accept tariffs on their exports to the US without retaliating, thereby providing revenue to the US Treasury to help finance global public goods.<\/p>\n Second, they could cease perceived unfair and harmful trade practices by opening their markets further and increasing purchases from America.<\/p>\n Third, they could increase their defense spending, including procurement from the US. Purchasing more US goods would theoretically ease the burden on American military personnel and create domestic jobs.<\/p>\n Fourth, foreign nations could increase investment in America, including building factories. Goods produced domestically would not be subject to the proposed tariffs.<\/p>\n Fifth, they could directly contribute to financing global public goods by \u201cwriting checks\u201d to the US Treasury.<\/p>\n Miran concluded: \u201cBurden sharing can ensure that the United States can continue to lead the free world for decades to come. This is an imperative not only for fairness, but also for viability. If we do not rebuild our manufacturing sector, we will struggle to provide the security we need for our safety and to support our financial markets. The world can still have the American defense umbrella and trade system, but it must start paying its fair share for them.\u201d<\/p>\n Interpretation: The underlying message is that the entire world\u2014all other capitalists included!\u2014must participate in reconstructing the American economy. This, the argument implies, is necessary to break the deadlock in the global capitalist system, allowing the US to resume its role as a global ‘gendarme’ guaranteeing capital accumulation and protecting the interests of propertied classes internationally.<\/p>\n The subsequent article in this series will examine the perspective of Scott Bessent, identified here as Treasury Secretary.<\/p>\n <\/p>\n","protected":false},"excerpt":{"rendered":" US President Donald Trump’s decision to initiate a trade war and impose tariffs impacting the global economy prompted accusations of \u201cirrational economic policies\u201d\u2014a critique often heard in Turkey. According to this perspective, Trump was perceived as a reckless autocrat imposing tariffs out of sheer ignorance. Alternatively, as renowned \u201cnew Keynesian\u201d economist Paul Krugman stated, Trump […]<\/p>\n","protected":false},"author":14,"featured_media":8816,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"ep_exclude_from_search":false,"footnotes":""},"categories":[176],"tags":[8924,319,8152,2394,829,1327,503,8821,3546,983,8922,1463,3918,8921,2360,8923,787,8920,1131],"class_list":["post-8815","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-america","tag-current-account-deficit","tag-donald-trump","tag-exchange-rates","tag-financialization","tag-global-economy","tag-globalization","tag-headline","tag-industrial-policy","tag-manufacturing","tag-national-security","tag-overvalued-dollar","tag-protectionism","tag-reserve-currency","tag-stephen-miran","tag-tariffs","tag-trade-deficits","tag-trade-war","tag-trumponomics","tag-us-economy"],"yoast_head":"\n