Latest news with #AUser'sGuidetoRestructuringtheGlobalTradingSystem
The Star
28-05-2025
- Business
- The Star
Only a dollar slump can fix US trade deficit
IF the United States is to significantly reduce or, whisper it, eliminate its trade deficit, the dollar will probably have to weaken a lot. How much is unclear, though, as history shows large dollar declines are rare and have unpredictable consequences for trade. Reducing the US trade deficit is the key goal of President Donald Trump's economic agenda because he believes it reflects decades of other countries 'ripping off' America to the tune of hundreds of billions of dollars annually. Stephen Miran, chair of the Council of Economic Advisers, published a paper in November titled 'A User's Guide to Restructuring the Global Trading System' in which he argued that the dollar is 'persistently over-valued' from a trade perspective. 'Sweeping tariffs and a shift away from strong dollar policy' could fundamentally reshape the global trade and financial systems. If a weaker exchange rate is the Trump administration's goal, it is on the right track, with the greenback down nearly 10% this year on the back of growing concerns over Washington's fiscal trajectory and policy credibility as well as the end of 'US exceptionalism' and the 'safe haven' status of Treasuries. But it is good to remember that a 15% fall in the dollar during Trump's first term had no impact on the trade deficit, which remained between 2.5% and 3% of gross domestic product (GDP) until the pandemic. Making a dent in the US deficit will therefore require a much bigger move. The weight of history Reducing the trade deficit will be a challenge, eliminating it without a recession, a historic feat. The United States has run a persistent deficit for the past half-century, as insatiable consumer demand has sucked in goods from around the world and voracious appetite for US assets from overseas has kept capital flowing stateside. The only exception was in the third quarter of 1980, when the US posted a slender trade surplus of 0.2% of GDP, and trade with the rest of the world almost briefly balanced in 1982 and 1991-92. But these periods all coincided with – or were the result of – sharp slowdowns in US economic activity that ultimately ended in recession. As growth shrank, import demand slumped and the trade gap narrowed. The dollar only played a significant role in one of them. In 1987, the trade gap was a then-record 3.1% of GDP. But it had almost disappeared by the early 1990s, largely because of the dollar's 50% devaluation from 1985-87, its biggest-ever depreciation. That three-year decline was accelerated by the Plaza Accord in September 1985, a coordinated response between the world's economic powers to weaken the dollar following its parabolic rise in the first half of the 1980s. But that does not mean large depreciations always coincide with reductions in the trade deficit. The dollar's second-largest decline was a 40% fall between 2002 and mid-2008, just before Lehman Brothers collapsed. But the US trade deficit actually widened throughout most of that period, peaking at a record 6% of GDP in 2005. While it had shrunk by more than three percentage points by 2009, that was due more to plunging imports during the Great Recession than the exchange rate. These two episodes of deep, protracted dollar depreciation stand out because over the past 50 years, the dollar index has only had two other declines exceeding 20%, in 1977-78 and the early 1990s, and a few other slides of 15% to 20%. None of these had any discernible impact on the US trade balance. Deficit to 'vanish'? The US administration is correct that the dollar is historically strong today by several broad measures. Given that President Trump and Treasury Secretary Scott Bessent seem intent on rebalancing global trade, pressure on the greenback looks unlikely to lift any time soon. But how much would the dollar have to fall to whittle away the yawning trade deficit, which last year totalled US$918bil, or 3.1% of GDP? Hedge fund manager Andreas Steno Larsen reckons a 20% to 25% depreciation over the next two years would see the deficit 'vanish'. Deutsche Bank's Peter Hooper thinks a 20% to 30% depreciation could be enough to 'eventually' narrow the deficit by about 3% of GDP. 'This means that a significant reversal of the roughly 40% appreciation of the dollar in real (price-adjusted) terms against a broad set of currencies since 2010 could be sufficient to get the current deficit back to a zero balance,' Hooper wrote last week. History suggests this may be challenging without a severe economic slowdown. But that's a risk the administration seems prepared to accept. — Reuters Jamie McGeever is a columnist for Reuters. The views expressed here are the writer's own.
Reuters
27-05-2025
- Business
- Reuters
Historic dollar fall needed to eliminate US trade deficit: McGeever
ORLANDO, Florida, May 27 (Reuters) - If the United States is to significantly reduce or, whisper it, eliminate its trade deficit, the dollar will probably have to weaken a lot. How much is unclear, though, as history shows large dollar declines are rare and have unpredictable consequences for trade. Reducing the U.S. trade deficit is the key goal of President Donald Trump's economic agenda because he believes it reflects decades of other countries "ripping off" America to the tune of hundreds of billions of dollars annually. Stephen Miran, chair of the Council of Economic Advisers, published a paper in November titled "A User's Guide to Restructuring the Global Trading System" in which he argued that the dollar is "persistently over-valued" from a trade perspective. "Sweeping tariffs and a shift away from strong dollar policy" could fundamentally reshape the global trade and financial systems. If a weaker exchange rate is the Trump administration's goal, it is on the right track, with the greenback down nearly 10% this year on the back of growing concerns over Washington's fiscal trajectory and policy credibility as well as the end of "U.S. exceptionalism" and the "safe haven" status of Treasuries. But it is good to remember that a 15% fall in the dollar during Trump's first term had no impact on the trade deficit, which remained between 2.5% and 3.0% of GDP until the pandemic. Making a dent in the U.S. deficit will therefore require a much bigger move. Reducing the trade deficit will be a challenge, eliminating it without a recession, a historic feat. The United States has run a persistent deficit for the past half-century, as insatiable consumer demand has sucked in goods from around the world and voracious appetite for U.S. assets from overseas has kept capital flowing stateside. The only exception was in the third quarter of 1980, when the U.S. posted a slender trade surplus of 0.2% of GDP, and trade with the rest of the world almost briefly balanced in 1982 and 1991-92. But these periods all coincided with - or were the result of - sharp slowdowns in U.S. economic activity that ultimately ended in recession. As growth shrank, import demand slumped and the trade gap narrowed. The dollar only played a significant role in one of them. In 1987, the trade gap was a then-record 3.1% of GDP. But it had almost disappeared by the early 1990s, largely because of the dollar's 50% devaluation from 1985-87, its biggest-ever depreciation. That three-year decline was accelerated by the Plaza Accord in September 1985, a coordinated response between the world's economic powers to weaken the dollar following its parabolic rise in the first half of the 1980s. But that does not mean large depreciations always coincide with reductions in the trade deficit. The dollar's second-largest decline was a 40% fall between 2002 and mid-2008, just before Lehman Brothers collapsed. But the U.S. trade deficit actually widened throughout most of that period, peaking at a record 6% of GDP in 2005. While it had shrunk by more than three percentage points by 2009, that was due more to plunging imports during the Great Recession than the exchange rate. These two episodes of deep, protracted dollar depreciation stand out because over the past 50 years, the dollar index has only had two other declines exceeding 20%, in 1977-78 and the early 1990s, and a few other slides of 15-20%. None of these had any discernible impact on the U.S. trade balance. The U.S. administration is correct that the dollar is historically strong today by several broad measures. Given that President Trump and Treasury Secretary Scott Bessent seem intent on rebalancing global trade, pressure on the greenback looks unlikely to lift any time soon. But how much would the dollar have to fall to whittle away the yawning trade deficit, which last year totaled $918 billion, or 3.1% of GDP? Hedge fund manager Andreas Steno Larsen reckons a 20-25% depreciation over the next two years would see the deficit "vanish", while Deutsche Bank's Peter Hooper thinks a 20-30% depreciation could be enough to "eventually" narrow the deficit by about 3% of GDP. "This means that a significant reversal of the roughly 40% appreciation of the dollar in real (price-adjusted) terms against a broad set of currencies since 2010 could be sufficient to get the current deficit back to a zero balance," Hooper wrote last week. History suggests this may be challenging without a severe economic slowdown. But that's a risk the administration seems prepared to accept. (The opinions expressed here are those of the author, a columnist for Reuters)
Fox News
15-05-2025
- Business
- Fox News
The real breakthrough in U.S.–China trade talks is much bigger than just tariffs
The United States and China recently announced a significant easing of tariffs, with both countries agreeing to reduce duties for a 90-day window. The financial press lauded the move. Stocks rallied. Headlines proclaimed relief in a trade war that has dragged on and weighed heavily on global markets. But while most fixated on the immediate impact of slashed tariffs, the more meaningful development went largely unnoticed. Quietly, Washington and Beijing agreed to establish a formal "trade consultation mechanism," a permanent bilateral platform to hold structured talks on currency policies, market access, and non-tariff barriers. While bureaucratic in tone, this institutional move may prove to be the most consequential economic shift in years. That's because this isn't just about trade logistics—it's about the foundation of the global economic system. The U.S.–China imbalance isn't simply a matter of bad trade deals or American overconsumption. It's a structural problem embedded in the international monetary framework, and for the first time in a generation, both countries appear ready to talk about it seriously. This deeper imbalance is something Stephen Miran—who now serves as chair of the President's Council of Economic Advisers—laid out in extraordinary detail in a 41-page report published in November 2024. Titled "A User's Guide to Restructuring the Global Trading System," the paper explains how the current dollar-centric model locks the United States into persistent trade deficits while encouraging surplus economies like China to underconsume and overproduce. These excess savings are then recycled into U.S. financial assets, particularly Treasuries, which props up the dollar and erodes American manufacturing. The result? A lopsided economic order where the U.S. acts as consumer of last resort and global debtor-in-chief, while countries like China flood the world with goods but face chronic domestic stagnation. Miran calls this a "Triffin World," referencing economist Robert Triffin's famous dilemma: When a national currency is also a global reserve, it eventually becomes impossible to balance domestic and international obligations. To satisfy global demand for safe assets, the U.S. must run deficits, which hollow out its own economy. Meanwhile, surplus nations avoid necessary reforms at home because the system rewards their export-heavy models. China's property crisis and slowing growth show the limits of its export model. The U.S., meanwhile, faces mounting deficits, political polarization, and industrial decline. Neither side can afford to ignore the systemic flaws any longer. In theory, tariffs are a way to push back against this imbalance. But they're crude and often counterproductive. What Miran proposes is a structural recalibration—realigning currency values to reflect underlying economic conditions, discouraging excessive reserve accumulation, and encouraging more balanced capital flows. The fact that this new U.S.–China mechanism explicitly includes discussions on currency and non-tariff measures suggests that Miran's framework is already influencing policy. This is more than a détente—it's the first real move to unwind Bretton Woods II. It's also important to understand what happens when imbalances like these are allowed to persist. History shows that unresolved economic distortions tend to escalate into geopolitical conflict. In the interwar period, the failure to manage reparations and trade balances led to a deflationary spiral in Europe. Germany's economy collapsed under the weight of austerity and fixed exchange rates, leading to widespread unemployment, social unrest, and ultimately, war. We're not there yet—but the warning signs are clear. China's property crisis and slowing growth show the limits of its export model. The U.S., meanwhile, faces mounting deficits, political polarization, and industrial decline. Neither side can afford to ignore the systemic flaws any longer. That's why the new committee matters. For the first time, Washington and Beijing are signaling a willingness to move beyond tactical measures and engage in structural dialogue. It may not grab headlines, but for those paying attention, it's a major pivot. Critics will say that this is just another diplomatic forum. But there's reason to believe it's more. Miran's appointment to the top economic advisory post in the White House indicates that these ideas have currency at the highest levels. And the alignment between his policy prescriptions and the scope of the new committee is hard to ignore. To be clear, none of this will be easy. The system didn't get here overnight, and it won't be unwound quickly. But the creation of this platform is a start. It acknowledges the real root of global trade tensions, not as a battle between exporters and importers, but as a distortion of incentives baked into the architecture of international finance. The United States must seize this opportunity. Rather than settling for symbolic tariff victories or short-term market gains, we should push for a durable framework that restores balance, rewards production at home, and disincentivizes dependency abroad. In that sense, this may be one of the clearest examples of President Trump's "Art of the Deal" approach—firm on leverage, clear-eyed on outcomes, and willing to tackle problems at the root rather than the surface. So, while the tariff cut got the headlines, the real story lies in this committee—a forum that could, if used wisely, become the place where the next phase of global economic order is quietly drafted. In the end, America cannot remain strong abroad if it's structurally weakened at home. This agreement gives us a chance to begin rewriting that script. And that's a deal worth making.
Yahoo
02-05-2025
- Business
- Yahoo
Top Trump economist derided as ‘incoherent' on tariffs after closed-door meeting with investors
Stephen Miran, who heads the president's Council of Economic Advisers, reportedly failed to reassure bond investors about the president's tariff plans. In a memo authored shortly after President Donald Trump's election victory, Miran said a stronger dollar was key to making other nations bear the burden of tax hikes on imports. The greenback, however, is down roughly 8% year to date. The Trump administration has clear incentive to smooth things over with bond investors, who may have forced the president to back off his sweeping 'reciprocal tariffs' earlier this month. But one of Trump's top economists, who authored a tariff blueprint read widely on Wall Street, reportedly failed to reassure several leading fixed-income traders in a meeting at the White House last week. Stephen Miran, chair of the Council of Economic Advisers, met with roughly 15 representatives from the likes of Citadel, BlackRock, and PGIM on Friday at an event convened by Citigroup, the Financial Times reported. Apparently, some participants thought it didn't go well, with sources branding Miran's comments on tariffs 'incoherent' and the Harvard-educated economist 'out of his depth' in comments to the FT. '[Miran] got questions, and that's when it fell apart,' one person familiar with the meeting told the FT. 'When you're with an audience that knows a lot, the talking points are taken apart pretty quickly.' Miran is reportedly distancing himself from his 40-page memo, titled 'A User's Guide to Restructuring the Global Trading System,' which he published shortly after Trump's election victory in November while working at $31 billion hedge fund Hudson Bay Capital. While Miran emphasized the paper was not 'policy advocacy,' it offered an argument backing Trump's claims that other nations, rather than U.S. consumers, would effectively 'pay' for tariffs, a theory blasted by most economists. Now, Miran leads the agency tasked with providing the executive branch with economic research and analysis. The National Economic Council, headed by Kevin Hassett, helps coordinate policy. 'Administration officials maintain regular contact with business leaders and industry groups about our trade and economic policies,' White House spokesman Kush Desai said in a statement. 'The only interest guiding the administration and President Trump's decision-making, however, is the best interest of the American people.' The Council of Economic Advisers did not immediately respond to Fortune's request for comment. Markets currently seem to be experiencing a period of uneasy calm, with the S&P 500 up over 10% from April 8, when the index plunged below the $5,000 mark for the first time in nearly 12 months. Bond yields, meanwhile, have also steadied after a shocking spike earlier this month sparked fears of a liquidity crisis and raised questions about the safe-haven status of U.S. debt. The 10-year Treasury yield, the benchmark rate for mortgages and other common types of loans, sat at 4.17% early Wednesday afternoon, down from a high of 4.59% on April 11. The selloff in U.S. assets across the board has seemingly poked holes in Miran's argument that other nations, rather than American consumers, will be hit hardest by a dramatic hike in taxes on imports. That's because his vision largely depends on how tariffs theoretically make the dollar stronger relative to foreign currencies. When imports from China become more expensive, for example, less demand for the country's goods means the value of the yuan compared with the dollar should decline. In a world where nations like China accept tariffs without retaliating—Beijing, to be sure, has responded with a 125% tax on U.S. imports—higher prices paid by U.S. importers may be offset by a cheaper exchange rate. 'American consumers' purchasing power isn't affected, since the tariff and the currency move cancel each other out,' Miran wrote in his memo, 'but since the exporters' citizens became poorer as a result of the currency move, the exporting nation 'pays for' or bears the burden of the tax, while the U.S. Treasury collects the revenue.' Of course, investors have instead piled out of the dollar, which is down 8% year to date. 'If currency offset does not occur,' Miran wrote in November, 'American consumers will suffer higher prices, and the tariff will be borne by them.' Miran also stressed the importance of preventing retaliation and tit-for-tat escalations with trading partners. Trump and Treasury Secretary Scott Bessent claimed this week that negotiations with countries like India, Japan, and South Korea are going well. Meanwhile, Commerce Secretary Howard Lutnick said he already has a trade deal done, but could not yet name the other country. 'Economists are rooting for the penguins of the Heard and [McDonald] Islands,' Paul Donovan, chief economist at UBS Global Wealth Management, wrote in a note Wednesday, referencing the uninhabited Antarctic territory assigned a baseline 10% tariff. Miran had previously suggested tariffs could set up a so-called Mar-a-Lago Accord, or an international agreement to devalue the U.S. dollar like the 1985 Plaza Accord. In the November memo, he also floated instituting a 'user fee' for foreign holders of U.S. Treasuries. Critics say the latter would equate to America defaulting on its debt. Michael Green, portfolio manager and chief strategist of ETF manager Simplify, disputed that characterization, but that doesn't mean he thinks such proposals make for practical policy. 'They are nice pontifications about what could potentially happen if the U.S. is able to somewhat unilaterally negotiate positions,' he told Fortune. 'What we are seeing in the tariff responses is at least the initial conditions for that are not met,' added Green, who previously founded a hedge fund seeded by George Soros and managed the personal capital of Peter Thiel. 'The rest of the world's like, 'Why? Why would we do that?'' The bond market riot earlier this month provides a taste of what a ruinous flight out of U.S. assets could look like. Miran didn't mention such proposals in a speech to the Hudson Institute, a think tank, earlier this month. As in his memo, however, he insisted the dollar's status as the world's reserve currency has hurt American manufacturing and allowed other nations to freeload off Washington's military might. 'If other nations want to benefit from the U.S. geopolitical and financial umbrella, then they need to pull their weight,' he said, 'and pay their fair share.' Countries could do that, he said, by passively accepting tariffs, committing to buy more U.S. exports, boosting their investment in American infrastructure, and ending 'unfair trade practices.' 'Fifth,' Miran said, 'they could simply write checks to Treasury that help us finance global public goods.' If Wall Street bigwigs got a similar spiel last week, some apparently left the White House less than convinced. This story was originally featured on Sign in to access your portfolio
Forbes
30-04-2025
- Business
- Forbes
Trump's First 100 Days Fuels An Economic Debate: Strategy Or Chaos
WASHINGTON, DC - FEBRUARY 13: U.S. President Donald Trump, signing an executive order increasing ... More tariffs. (Photo by) The Trump administration's aggressive and wide-ranging economic policy changes during his first 100 days, especially historically high tariffs coupled with a confrontational negotiating stance towards trading partners, is fueling an intense debate among economists. Is there a master plan at work, and we just need to be patient? Or do Trump's policies lack a coherent strategy, and risk both short and long-term economic damage? President Trump, and his economic advisors, argue there's a strategy. This is the so-called 'Mar-A-Lago' agreement, and it has four key elements. First, high tariffs will reduce the US trade deficit by making imports more expensive. Second, higher import prices will shift investment and production—especially manufacturing—back home. Third, the dollar's exchange value will fall, helping US export competitiveness and also financing of US debt. And finally, tariffs will generate significant new revenue, taking pressure off the budget and perhaps financing tax cuts or changes in the income tax. Wall Street economist Stephen Miran, a Harvard Ph.D heading Trump's Council of Economic Advisers, is the strategy's principal architect. Miran's 2024 paper, 'A User's Guide to Restructuring the Global Trading System,' laid out how Trump could change 'the terms of trade, currency values, and the structure of international economic relations.' Miran saw the dollar as 'persistently overvalued, in large part because dollar assets function as the world's reserve currency.' This was viewed as the main cause of China's export success that flooded the US with cheap goods and caused special damage to communities reliant on manufacturing jobs. Tariffs are Miran's primary tool for correcting this, seeing them as a general negotiating lever, and a direct blow to China. Miran outlined a gradual policy, 'a 2% monthly increase on tariffs on China…until demands are met.' Miran had other elements, but higher tariffs are the centerpiece. He also advocated getting other countries to reduce their holdings of US debt, by using the President's emergency powers to reduce or withhold interest payments or charge additional fees on Treasuries. He also advocated using tariffs and military security policy to force debt holders to restructure into 'ultra-long duration' bonds, perhaps even 'perpetuals rather than century (100 year) bonds.' (36) Gillian Tett of the Financial Times saw Trump's strategy (really Miran's paper) as 'extraordinarily bold,' conceived by 'people who do want to re-engineer the global financial and economic system' with 'a coherent plan.' They want to keep the US as the dominant military power with the world's reserve currency, while lowering the dollar's value to advantage US manufacturing and exports. Recently, Bloomberg's John Authers also gave credit to Miran's overall vision. But he says Trump has implemented it 'more abruptly and aggressively than the architects of the policy wanted.' Economists have attacked Trump's policies on two fronts, not seeing it as a coherent plan. Many view the tariffs as having broadly negative economic effects, with internally logical contradictions. And they see a chaotic process that could further hurt the US in both the short and long term, possibly threatening the dollar's international role. Most economists, see tariffs as a simple tax paid by consumers on imported goods. This view spans the political spectrum from Gregory Mankiw (chairman of George W. Bush's Council of Economic Advisers), to Nobel laureate Joe Stiglitz ( Council chair under Bill Clinton). Economists see several negatives from Trump's tariffs. First, by raising prices, they will feed inflation. Second, by disrupting international supply chains, they will damage American companies that rely on imported goods; a 2019 study by the San Francisco Fed found that 'about 45% of U.S. imports reflect intermediate inputs to the production of American goods.' Economists see little hope for significant reshoring of manufacturing, which only accounts for about 8 percent of total US employment. And they fear any reshoring will be swamped by the overall negative impact of the tariffs, for two reasons. First, Trump's tariffs could induce a recession by raising prices and reducing overall investment, demand and employment. Second, many American companies rely on complex global supply chains, which tariffs will disrupt while making goods more expensive. For example, taconite rock for iron ore mined in Minnesota is used to make steel for U.S. automakers. Trump's tariffs on cars and auto parts caused an immediate slump in demand for vehicles because they raised the prices on imported intermediate goods for car production. And that in turn caused a major mining company in Minnesota to lay off over 600 US workers, due to falling demand for iron ore to make steel. In addition to the macroeconomic concerns over inflation and recession, another issue worries economists—will Trump's policies undermine the US dollar's long-standing role as the world's reserve currency? Since the end of World War II, the dollar has anchored global financial markets and trade. That dominance has helped the US finance its trade and budget deficits for decades. Other nations—especially China and Japan—hold significant amounts of dollar assets, stemming from America's large and ongoing trade deficit. We pay them in dollars, and as they accumulate them, they buy US treasuries. That's helped the US finance its ongoing budget deficits. The dollar's role as a reserve currency rests on the belief that US debt is an exceptionally safe asset. But Trump's policy moves have shaken that belief. The Bloomberg Dollar Index, which measures the dollar against a basket of international currencies, has fallen by 9% since Trump took office, and is on track for 'the worst first 100 days' of a presidency since Richard Nixon. Miran's strategy paper recognized risks to dollar supremacy, especially given our ongoing need to finance the 'twin' trade and budget deficits, and he hoped the Federal Reserve would help by lowering interest rates. But the Fed has held steady so far. In addition, Republicans plan to finance over $4 trillion in tax cuts in the coming budget, and most of that will be paid for by additional borrowing, putting further upward pressure on interest rates. The dollar remains the key international currency, but some economists see Trump generating long-term risks. New School economist William Millberg (my colleague), points out the dollar is falling in value while Treasury bond yields are rising, an unusual combination that signals a lack of investor confidence in US assets generally and an increased risk of a run on the dollar. And Berkeley economist Barry Eichengreen says 'the dollar has not lost its safe-haven status…but we must seriously contemplate the possibility.' Overall, economists of many different political stripes argue Trump's policies are harmful and not well thought out. High tariffs are viewed as a tax that will suppress demand and cause inflation, harming US consumers but also the many US companies that rely on international supply chains. And Trump's volatile and uncertain policy steps could threaten the US dollar's dominant postwar role as a reserve currency. But it isn't just the internal economic logic of Trump's policies—or the lack of it-- that is failing to convince economists. It's also the erratic and volatile nature of implementation that is seen adding to confusion and uncertainty. My next blog will examine Trump's economic policy implementation in his first 100 days, discussing the many criticisms from across the economic and political spectrums.
