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29-05-2025
- Business
- Yahoo
How Stephen Miran—a Harvard-trained former free market champion—became Trump's top ideologue on tariffs
Back in 2010, Stephen Miran had one of those once-in-a-lifetime aha moments that few people experience in their careers. 'It was during my first job working as an economist for a currency-focused hedge fund,' Miran recalled during a phone interview in early May. 'The currency markets are a bit of a Wild Wild West. All sorts of things happen that shouldn't happen in an economics textbook. Heavily managed currencies in some countries were making markets behave in weird ways.' What shocked the twentysomething Wall Streeter most from this 'front-row seat' was the way China manipulated 'currency channels' to ensure that its renminbi stayed way undervalued versus the dollar. As a newly minted economics PhD from Harvard, Miran recognized that Beijing was jiggering its coin of the realm to artificially boost exports to the U.S. in a scheme that kept the dollar far overpriced, sapping the flow of American-made goods to China and fueling our exploding trade deficit versus the world's second largest economy. 'Watching the accumulation of Chinese currency reserves in dollars accruing from exports was absolutely eye-opening,' recalls Miran. Witnessing those abuses also awakened him to China's 'non-market barriers, its different [higher than U.S.] tariff rates, the IT theft, the policies so detrimental to the U.S..' It greatly perplexed Miran. Why, he wondered, had 'no one seemed to care for so long?' That 'light bulb' experience ultimately launched Miran on a crusade to fix what he regarded as a worldwide trading system run amok that pounded prosperity and stole jobs from the central force that made it work, the United States. Just over a year ago, Miran, who according to online sources is 41, was a virtual unknown in both political and economic circles. He'd worked in a variety of investment firms and never been an academic. He got on Trump's radar by authoring a series of papers that matched the mindset of the ascendant, pro-tariff contingent in the Republican presidential campaign, including a now famous 41-page treatise Miran himself nicknamed 'the Mar-a-Lago Accord' that discussed a number of possible solutions to closing America's yawning trade gap. Then, by emerging as the Republicans' top tariff raisonneur, Miran in late December won Trump's nod as Chair of the Council of Economic Advisers (CEA). Of course, Trump's been a big fan of slapping heavy duties on foreign products since the 1970s, but while tariffs formed a virtual sideshow in Trump 1.0, they're currently a centerpiece of his economic blueprint (even as the President now faces a legal battle over whether he has the authority to impose them). In the first administration, the president got pushback from the likes of Gary Cohn and Steven Mnuchin that blunted a wider offensive favored by the administration's ultra-protectionist wing. Now he's surrounded by a united team of hawks that encompasses Commerce Secretary Howard Lutnick, chief of the National Economic Council Kevin Hassett, trade counselor Peter Navarro, and the least known yet highly influential newcomer to the Trump inner circle, Stephen Miran. Chairs of the CEA are typically either prestigious names plucked from top universities (Ben Bernanke, Jason Furman, Austan Goolsbee) or longtime Washington operatives (Jared Bernstein), or both. Despite a brief stint at Treasury in Trump One, Miran doesn't check either box. None of the dozen noted economists I interviewed for this story had ever met Miran, or heard of him before his ascension to head CEA. In a couple of cases, they fumbled his last name as 'murr-Ann,' as frequently do TV and podcast pundits (right pronunciation: 'My-run'). They may not know how to pronounce his name—but all of a sudden the policies Miran is championing are altering the U.S. economy for years to come—and causing serious hand-wringing among mainstream economists. The sources interviewed by Fortune describe Miran as, first and foremost, a blend of policy wonk and true believer. 'Behind the scenes, he's really an architect of the president's trade position, and he has lots of sway and voice within the administration,' says one of the leading officials appointed by Trump. 'He's part of the youth movement with people like Trade Representative Jamieson Greer. He doesn't have sharp elbows. He acts a lot more like an academic than someone looking for political advantage.' This person notes that his peers in and around the White House value Miran as a better spokesman for the Trump program than Navarro, because while Navarro sounds at times wildly partisan and ideological, Miran presents his stance in a more statesmanlike mode, citing research and analysis to back his positions. Miran's a rarity, a highly trained economist who knows all the jargon, has absorbed the peer studies, brings intellectual heft, and makes a logical-sounding case for Trump's stunningly contrarian game plan. 'To say the least, it's a relatively small pool of PhD economists who are economic nationalists. That's a blinding reality. But Steve is one,' says someone outside the administration who knows him. Still, Miran can mount the kind of over-the-air zealotry his boss reveres. In his TV interviews, the new CEA chair mixes the sober explanations with the effusive cheerleading that's part of the job for the president's braintrust. 'He understands that working for Trump requires the performative aspects of occasional public worship,' says Jessica Riedl, a senior fellow at the conservative Manhattan Institute. During a CNBC interview in mid-April, Miran gushed, 'America is back!' and avowed that 'coupling the new regulatory agenda with the president's approach to trade is exactly how we get to the new golden age.' It also helps his standing among the Trumpians that, by all accounts, Miran's extremely personable. 'He's a very nice, very pleasant guy, and a brilliant economist, even though I find his tariff arguments unpersuasive. He's a well-meaning person who understands that his job requires some intellectual backflips,' says Riedl, who knew Miran when both worked at the Manhattan Institute. Indeed, in our conversation, this writer found Miran not only pleasant but willing to go beyond his public proselytizing and patiently explain the personal journey that forged his unorthodox thinking. This future rebel grew up in Rockland County, N.Y., a middle-class suburb of Manhattan, raised by lifetime civil servants who met while both worked at the Social Service Administration. His parents, Miran told me, 'had an interest in [government] policy, and I had an interest in policy my whole life.' At Boston University, he started as a biochemistry major. 'But I didn't function well in a lab,' he laments. 'Maybe I would have stayed if there had been mathematical biology.' Instead, Miran switched from centrifuges and spectrophotometers to economics. His second major was philosophy, a field that brought Miran under the spell of the 18th-century Scottish legend David Hume, who inspired the father of economics, Adam Smith, and iconic anthropologist Charles Darwin. Hume was a pioneering empiricist during the Enlightenment who insisted that insights on human nature arose not from theories and hypotheses, but only direct observation of how people behaved—and that it was impossible to make predictions by studying what happened in the past. 'I credit that [the study of Hume] with teaching me to ask radically inconvenient questions,' says Miran. As a doctoral student at Harvard, Miran continued pursuing a mission to 'make lives better by grasping how the world of economics works.' Even then, he harbored hopes of fostering 'human flourishing' from a post in government. He concentrated on public policy, and the faculty then featured the top star in the field, Martin Feldstein, who headed the CEA under President Reagan. 'He was the guy to work with,' recalls Miran. 'He'd virtually created the field in the '70s and '80s.' Under Feldstein's tutelage, Miran didn't get into trade. 'I was domestically focused,' he explains. His data-driven research at Harvard examined such issues as how strict versus weak rules that govern borrowing by states influence their employment and growth. It was his mentor and thesis adviser Feldstein who showed his student how to shelve the shop talk and get the folks who pass the laws to listen. 'Marty said that I should pretend the person I was talking to was a senator [who was wondering], 'Why should I care?' The idea was to discipline your message for people who don't want to get lost in the technical details.' After stints at Lily Pond Capital where he pondered the craziness in the currency markets, and at Fidelity Investments, Miran spent five years as head of macro strategy for a hedge fund backed by fabled financier Stan Druckenmiller. In April of 2020, Miran landed his first government job as a senior advisor to the Department of the Treasury during the depths of the COVID-19 crisis. 'The country needed people to fight for it,' he recalls. In his 11 months in the neoclassical Treasury building, Miran helped shape the CARES Act and other stimulus measures that channeled over $2 trillion in emergency cash to families and businesses, and likely shortened the pandemic downturn and accelerated the powerful recovery that followed. After Biden won the White House, Miran partnered with Dan Katz, a fellow counselor he'd worked alongside at the Trump Treasury, to found a global macro hedge fund. (Katz is now the Treasury Department's chief of staff under Scott Bessent.) In the spring of 2023, Miran left the business world to concentrate on his first love, public policy—this time as a writer. Miran joined the libertarian-leaning Manhattan Institute, and over the next 18 months contributed 33 articles to its City Journal; many of his pieces also ran in the Wall Street Journal, Barron's, and the Financial Times. It was this outpouring that garnered what Miran had coveted since his Harvard days: an influential role in setting U.S. economic strategy. It's important to note that Miran, in these op-eds, takes a classic free-market stance in most of his critiques and proposals. For example, he sided with Milton Friedman's view that stimulating the economy when unemployment is low causes inflation, and bashed Biden for doing just that—'pouring gasoline on the fire' through the IRA act and other big spending measures unleashed just as growth was reaccelerating. But his primary aim was crafting a framework for restructuring a global trading system that severely penalized the U.S. Miran issued his first major call for reform in 'Brittle Versus Robust Reindustrialization,' posted in February of 2024. In the article. Miran championed a new 'industrial policy'—a term Republicans seldom uttered—aimed at 're-shoring' manufacturing and jobs lost to China and other nations that had deployed currency gamesmanship, heavily subsidized exports, and other unfair practices to invade and exploit our wide-open markets. A big focus of the new paradigm: stamping 'made in America' on semiconductors, aerospace and telecom equipment, and armaments essential to America's security. The primary tool in forging this transformation: tariff walls. But Miran also advised caution. He warned that stacking big, 'chunky' duties all at once sowed uncertainty and didn't give U.S. producers sufficient time for raising their own production to replace the flow of imports stanched by the new levies. Instead, he recommended 'a gradual ramp' and issuing guidance spelling out the conditions that would trigger future hikes. Of course, the Trump administration took exactly the contrary course on Liberation Day, and financial markets rebelled. The shift in the new U.K. and China agreements detailing concessions the U.S. requires for reducing tariffs from their new and much lower thresholds runs much closer to the Miran blueprint. According to my reporting, it was 'Brittle Versus Robust' that caught the attention of the Trump economic policy crew and especially impressed future Treasury Secretary Scott Bessent. A week after Trump swept the 2024 election, Miran released his longest and best-known essay, expansively titled 'A User's Guide to Restructuring the Global Trading System,' published on the website of investment management firm Hudson Bay Capital, where Miran served as senior advisor. The treatise details Miran's perspective on how the reigning system injures America, and explores this nation's options for shifting the mechanics to our advantage. The root of the problem, according to Miran, is the 'persistently overvalued' dollar. Supplying the world's reserve currency, Miran argues, severely burdens America by rendering the dollar far stronger than it would be if other nations weren't so addicted, and didn't get such a fabulous ride reaping the dollar's benefits by using the greenback for everything from trading oil to collateralizing bilateral contracts, not to mention marshaling their central bank holdings of our universal currency to manipulate its exchange rate, all at our expense. Specifically, that overvaluation makes U.S. exports unduly expensive, 'eroding our competitiveness,' and at the same time, keeps the yen, renminbi, and euro excessively cheap, allowing Japan, China, Germany, and France to boost exports by selling their stuff Stateside at bargain prices. Miran then outlines a daring strategy to totally flip today's America-bashing scenario by orchestrating 'a 21st-century version of multinational currency accord.' He airs a plan similar to the one proposed in 2023 by famed economist Zoltan Pozsar, founder of research boutique Ex Uno Plures. Like Pozsar, Miran advocated an epic pact where our major trading partners jointly agree to gradually sell down the multi-trillions in dollar reserves held by their central banks and other government institutions. That campaign would lower the greenback's value, swelling our exports, curbing our imports, and shrinking our gigantic trade deficit so abhorred by Trump. To prevent U.S. interest rates from spiking as foreign nations shed our Treasuries, the deal would require our cohorts to roll a big portion of what they retain into a new suite of U.S. federal debt offerings that mature far in the future—Miran, like Pozsar, touts 100-year bonds. The master plan would ensure that the dollar remains the world's reserve currency, and safeguards the greenback from the trickery that's hobbled America's prosperity by artificially inflating its value. To brand his grandiose vision, Miran adopts the title Pozsar coined for his similar proposal: the 'Mar-a-Lago Accord.' Miran reprised 'Mar-a-Lago' to spotlight his conviction that a Trump trade coup to come would stand alongside two groundbreaking agreements famously named for the venues of their signing. The reference to Trump's Palm Beach resort evokes the 1944 Bretton Woods pact, titled for a mountain hamlet in New Hampshire, that established the stable post-war system that tied major currenices to the gold standard, and the 'Plaza Accord' negotiated at the Manhattan luxury hotel in 1985, where the 'G5' nations, the U.S., Japan, West Germany, France, and the U.K., formed a successful joint program for devaluing the then hugely overpriced dollar. (By the way, Trump himself owned the Beaux Arts Manhattan landmark from 1988 to 1995.) Miran then backtracks to acknowledge that the drive down the dollar route that he extolled isn't possible for a basic reason: Trump's dead set on keeping the global medium of exchange strong and retaining its status as the go-to cornerstone of international commerce. He notes that the POTUS-elect 'threatened to punish' nations that dump the king of currencies. Hence, he puts the original Mar-a-Lago version aside despite its compelling economic logic, and concludes that given Trump's 'praise' for 'the reserve status of the dollar' that the U.S. will stay stuck with the main source chronic of America's trade woes, our excessively pricey currency. After taking a massive dollar devaluation off the table, Miran's 'User's Guide' goes on to embrace what he calls 'an alternative form of Mar-a-Lago accord' for setting things right. Miran insisted to this writer, as he'd said before, that while the Manhattan Institute writings were 'designed as policy advocacy,' the 'User's Guide' 'gets wrongly mischaracterized every day as administration policy, when it's really my own views.' Still, this 'alternative' Mar-a-Lago prescription mirrors the one he's been advancing since taking the CEA chair. It's a model of 'burden sharing' that he's been promoting in recent interviews and speeches. Here's the basic idea: The U.S. can leverage its powerhouse position in global trade to reap compensation from its partners in exchange for our accepting an overpriced dollar that's part and parcel of providing a global currency, and that essentially allows foreigners to sell their products at discount within our borders compared to what we can charge for our cars and chips in their markets. We'll also collect payback for the huge expense of supplying the American security umbrella protecting our allies. Instead of the multi-country agreement envisaged in part one of the 'User's Guide,' 'burden sharing' relies on separate negotiations with multiple nations. The tool for collecting this bounty: tariffs individually negotiated across multiple nations. Theoretically, the more a country lowers its direct duties and non-tariff barriers, the lower the levies the U.S. will charge them. The proviso: Big tariffs for even the best-behaved are here to stay. That stance constitutes a sudden, tectonic shift from the post-war march toward free trade to a new protectionism, and Miran's a prime mover in making it happen. Miran described the concept at length during a talk at the Hudson Institute on April 7: Big exporters to the U.S., and especially China, are what he calls 'inflexible'—they've built plants 'specifically for selling to the U.S. consumer,' and those plants can't pick up and move or easily switch to making something else. Their workers are trained to manufacture those U.S.-bound products. China can't find anywhere else to offload the goods in big volumes. As Miran put it, 'China can't stop selling to us. Who's going to buy as much [of their products] as U.S. consumers?' On the other hand, he argues, America's shoppers are just as flexible as Chinese producers are boxed in. 'We have all the leverage because we're so big,' he says. If Chinese exporters raise their prices to recoup our tariffs, Americans simply will stop buying their offerings. Our consumers 'can reallocate demand across borders' or purchase Stateside-made alternatives, he contends. The upshot: To keep sales humming, the Chinese exporters will lower the prices they charge U.S. importers to fully offset the tariffs those importers are paying, keeping the price of Chinese goods crossing our borders the same. America's shoppers won't see higher price tags on the China-made toys and computers at our megastores and electronics chains. The U.S. Treasury collects rich revenues, and China and the other big exporters, not our families, cover the full costs. 'It will not happen on day one, but will happen in the 'fullness of time,'' said Miran, rebooting one of his favorite expressions. The mainstream economics crowd, however, is not sold. In a Fortune interview, Larry Summers, Treasury Secretary under Bill Clinton and a top adviser to Barack Obama, slammed Miran's Mar-a-Lago manifesto, in all its forms, as 'a bizarre, narcissistic conceit rather than a serious approach to policy that other nations can subscribe to.' Put simply, almost all experts to whom I spoke doubt that that China, Japan, Mexico, and other nations, and not U.S. consumers via higher prices, nor companies through reduced profits for investing in new plants and jobs, will absorb double-digit tariffs slapped on imported groceries, autos, and steel. 'I disagree with the administration's argument,' says Olu Sonola, head of U.S. economic research for Fitch Ratings. 'What we've seen in the last month is the opposite evidence coming from manufacturers, and retailers such as Walmart.' He says the de-escalation of tariffs since Liberation Day represents things going from 'a knockout to a body blow.' At the close of 2024, Fitch predicted GDP growth of just over 2% for 2025; the drag of tariffs that are larger than expected despite the big retrenchment lowered that forecast substantially, to a number unlikely to exceed 1.7%. Higher, tariff-driven prices will force consumers to reduce their purchases, throttling an economy that, right now, is chugging briskly head. Sonola reckons that the protectionist agenda will keep pushing inflation farther from the Fed's 2% target more toward 3%. 'Even if we get reshoring of manufacturing, our wages are higher in the U.S., so that will stoke inflation,' he says. 'The Fed's already in restrictive territory, and If inflation expectations keep rising because of tariffs, it won't be able to cut rates. So mortgage rates will stay higher, companies will pay more to borrow, cutting profits, and it will bleed through to the economy.' This self-inflicted dead weight, he says, could last for an extended period. So what would Miran's hero Martin Feldstein think of his protégé's work? We have a pretty good idea, because shortly before he died, the fabled economist wrote several editorials on the original Trump attack aimed at China. Feldstein denounced Beijing's effective rule requiring that to enter its giant market, U.S. companies had to take on a local partner and surrender their IP as part of the arrangement. He endorsed high duties as a weapon for forcing the Chinese to stop what amounted to blatant theft of our technology. But Feldstein stated that in general, he favored 'low tariffs or no tariffs' and believed they were useless in shrinking our trade deficit. 'That's because we consume more than we produce, and must [import] the difference from the rest of the world,' he wrote. The student who's taken the same seat the great man occupied three decades earlier is a maverick defying the very establishment Feldstein exemplified. Miran is speeding down a road America hasn't tried in almost a century—a narrow route framed by tight guard rails and soft shoulders, where the line of sight is short, and the risk of damage looms large. This story was originally featured on
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Business Standard
10-05-2025
- Politics
- Business Standard
Best of BS Opinion: Quiet powers that are shaping a tumultuous world
Have you ever noticed that a candle with a steady flame doesn't scream for attention? It doesn't flare or flicker. It simply holds — quiet, consistent, defiant. In a world hooked on chaos and speed, that kind of constancy is easy to overlook. But this week's stories, wildly different as they are, are all drawn to that image: forces that burn without blinking, whether they illuminate, unsettle or quietly persist. Across economics, politics, technology, and culture, the flame holds its shape—even when winds rise. Today's stories are a reminder of that little flame. Let's dive in Kenneth Rogoff analyses one such flame in the form of a misunderstood economic strategy — the so-called 'Mar-a-Lago Accord' aimed at weakening the US dollar. While presented as a fix for deindustrialisation and trade deficits, the plan, like a draft caught in an open window, misunderstands the physics of the room. It fixates on the currency's strength but forgets to ask why that strength exists. Rogoff gently but firmly lights the path toward real solutions — fiscal discipline and domestic investment, not artificial interventions. In a flickering corner of the literary world, Sandeep Goyal explores the AI-assisted resurrection of Agatha Christie. BBC Maestro's controversial writing course has ignited both admiration and outrage. Is it a tribute, or is it torching ethical lines we've barely drawn? Whether you see it as flame or flammable, it's part of a broader fire catching hold in creative industries — where nostalgia, AI, and commerce spark together, sometimes beautifully, sometimes destructively. Meanwhile, in India's political heart, Aditi Phadnis writes on a rare show of unity amid conflict. 'Operation Sindoor' has seen opposition and government walk side-by-side, drawing on a deep democratic tradition of solidarity during war. Like the candle, this consensus glows steadily — difficult to notice in daylight, deeply reassuring in the dark. But in Shekhar Gupta's piece on Pakistan's General Munir, we meet a man not lighting candles, but stamping them out. His aggressive stance on Kashmir, timed with India's peaceful gestures like the Vande Bharat launch, suggests a deliberate attempt to quench the symbolism of normalcy. When one flame rises, another tries to snuff it. Vanita Kohli-Khandekar closes the loop with a cultural reflection: as Hollywood faces tariffs and internal tremors, its soft power dims. Trump's proposed restrictions on international shoots could hollow out the emotional fire America exports to the world. If that flame flickers, no other nation — despite talent — can quite replace its glow. Stay tuned, and remember, even in the darkest rooms, it's not the storm that matters the most, it's the flame that holds!
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Business Standard
09-05-2025
- Business
- Business Standard
Why Trump's 'weak dollar' plan misreads America's trade deficit
Now that US President Donald Trump's tariff war is in full swing, investors around the world are asking: What's next on his agenda for upending the global economic order? Many are turning their attention to the so-called 'Mar-a-Lago Accord' — a plan proposed by Stephen Miran, chair of Trump's Council of Economic Advisers, to coordinate with America's trading partners to weaken the dollar. At the heart of the plan is the notion that the dollar's status as the world's reserve currency is not a privilege but a costly burden that has played a major role in the deindustrialisation of the American economy. The global demand for dollars, the argument goes, drives up its value, making US-made goods more expensive than imports. That, in turn, leads to persistent trade deficits and incentivises US manufacturers to move production overseas, taking jobs with them. Is there any truth to this narrative? The answer is both yes and no. It's certainly plausible that foreign investors eager to hold US stocks, bonds, and real estate could generate a steady flow of capital into the United States, fuelling domestic consumption and boosting demand for both tradable goods like cars and non-tradables such as real estate and restaurants. Higher demand for non-tradable goods, in particular, tends to push up the dollar's value, making imports more attractive to American consumers, just as Mr Miran suggests. But this logic also overlooks crucial details. While the dollar's reserve-currency status drives up demand for Treasuries, it does not necessarily increase demand for all US assets. Asian central banks, for example, hold trillions of dollars in Treasury bills, which they use to help stabilise their exchange rates and maintain a financial buffer in the event of a crisis. They generally avoid other types of US assets, such as equities and real estate, since these do not serve the same policy objectives. This means that if foreign countries simply need to accumulate Treasury bills, they don't have to run trade surpluses to obtain them. The necessary funds can also be raised by selling existing foreign assets such as stocks, real estate, and factories. That is precisely what happened in the 1960s through the mid-1970s. By then, the dollar had firmly established itself as the global reserve currency, yet the US was almost always running a current-account surplus — not a deficit. Foreign investors were accumulating US Treasuries, while American firms expanded abroad by acquiring foreign production facilities, either through direct purchases or 'greenfield' investments, in which they built factories from the ground up. The postwar era was hardly the only time when the country issuing the world's reserve currency ran a current-account surplus. The British pound was the undisputed global reserve currency from the end of the Napoleonic Wars in the early 1800s until the outbreak of World War I in 1914. Throughout that period, the United Kingdom generally ran external surpluses, bolstered by high returns on investments across its colonial empire. There is another way to interpret the US current-account deficit that helps explain why the relationship between the exchange rate and trade imbalances is more complicated than Mr Miran's theory suggests. In accounting terms, a country's current-account surplus equals the difference between national savings and investment by both the government and the private sector. Importantly, 'investment' here refers to physical assets such as factories, housing, infrastructure, and equipment — not financial instruments. When viewed through this lens, it is clear that the current-account deficit is influenced not just by the exchange rate but by anything that affects the balance between national saving and investment. In 2024, the US fiscal deficit was 6.4 per cent of gross domestic product (GDP), significantly larger than the current-account deficit, which was under 4 per cent of GDP. While closing the fiscal deficit would not automatically eliminate the current-account deficit — that would depend on how the gap is closed and how the private sector responds — it is a far more straightforward fix than launching a trade war. Reducing the fiscal deficit would, however, involve the difficult political task of convincing Congress to pass more responsible tax and spending bills. And unlike a high-profile trade confrontation, it wouldn't cause foreign leaders to curry favour with Mr Trump; instead, it would shift media attention back to domestic politics and congressional negotiations. Another key factor behind the current-account deficit is the strength of the American economy, which has been by far the most dynamic among the world's major players in recent years. This has made US businesses particularly attractive to investors. Even manufacturing has grown as a share of GDP. The reason employment has not kept pace is that modern factories are highly automated. Mr Miran's plan, clever as it might be, is based on a flawed diagnosis. While the dollar's role as the world's leading reserve currency plays a part, it is just one of many factors contributing to America's persistent trade deficits. And if the trade deficit has many causes, the idea that tariffs can be a cure-all is dubious at best. The author, a former chief economist of the International Monetary Fund, is professor of economics and public policy at Harvard University. @2025 Project Syndicate
AU Financial Review
08-05-2025
- Business
- AU Financial Review
Is America about to nuke its own currency?
Now that US President Donald Trump's tariff war is in full swing, investors worldwide are wondering what's next on his agenda for upending the global economic order. Many are turning their attention to the so-called 'Mar-a-Lago Accord' – a plan proposed by Stephen Miran, chair of Trump's Council of Economic Advisers, to coordinate with America's trading partners to weaken the dollar. At the heart of the plan is the notion that the dollar's status as the world's reserve currency is not a privilege but a costly burden that has played a big role in the deindustrialisation of the American economy. The global demand for dollars, the argument goes, drives up its value, making US-made goods more expensive than imports. That, in turn, leads to persistent trade deficits and incentivises US manufacturers to move production overseas, taking jobs with them. Project Syndicate
Business Mayor
07-05-2025
- Business
- Business Mayor
Why Donald Trump's plan to weaken the dollar is flawed
N ow that US President Donald Trump's tariff war is in full swing, investors around the world are asking: what's next on his agenda for upending the global economic order? Many are turning their attention to the 'Mar-a-Lago Accord' – a plan proposed by Stephen Miran, chair of Trump's Council of Economic Advisers, to coordinate with America's trading partners to weaken the dollar. At the heart of the plan is the notion that the dollar's status as the world's reserve currency is not a privilege but a costly burden that has played a major role in the deindustrialisation of the American economy. The global demand for dollars, the argument goes, drives up its value, making US-made goods more expensive than imports. That, in turn, leads to persistent trade deficits and incentivises US manufacturers to move production overseas, taking jobs with them. Is there any truth to this narrative? The answer is yes and no. It's certainly plausible that foreign investors eager to hold US stocks, bonds, and real estate could generate a steady flow of capital into the United States, fuelling domestic consumption and boosting demand for tradable goods such as cars and non-tradables such as real estate and restaurants. Higher demand for non-tradable goods, in particular, tends to push up the dollar's value, making imports more attractive to American consumers, just as Miran suggests. But this logic also overlooks crucial details. While the dollar's reserve-currency status drives up demand for Treasuries (Treasury bills, Treasury bonds, and Treasury notes), it does not necessarily increase demand for all US assets. Asian central banks, for example, hold trillions of dollars in Treasury bills, to help stabilise their exchange rates and maintain a financial buffer in the event of a crisis. They generally avoid other types of US assets, such as equities and real estate, since these do not serve the same policy objectives. This means that if foreign countries simply need to accumulate Treasury bills, they don't have to run trade surpluses to obtain them. The necessary funds can also be raised by selling existing foreign assets such as stocks, real estate, and factories. That is precisely what happened in the 1960s through the mid-1970s. By then, the dollar had firmly established itself as the global reserve currency, yet the US was almost always running a current account surplus – not a deficit. Foreign investors were accumulating US Treasuries, while American firms expanded abroad by acquiring foreign production facilities, either through direct purchases or 'greenfield' investments, in which they built factories from the ground up. The postwar era was hardly the only time when the country issuing the world's reserve currency ran a current account surplus. The British pound was the undisputed global reserve currency from the end of the Napoleonic wars in the early 1800s until the outbreak of the first world war in 1914. Throughout that period, the UK generally ran external surpluses, bolstered by high returns on investments across its colonial empire. There is another way to interpret the US current account deficit that helps explain why the relationship between the exchange rate and trade imbalances is more complicated than Miran's theory suggests. In accounting terms, a country's current account surplus equals the difference between national savings and investment by the government and the private sector. Importantly, 'investment' here refers to physical assets such as factories, housing, infrastructure, and equipment – not financial instruments. When viewed through this lens, it is clear that the current account deficit is influenced not just by the exchange rate but by anything that affects the balance between national saving and investment. In 2024, the US fiscal deficit was 6.4% of GDP, significantly larger than the current account deficit, which was under 4% of GDP. While closing the fiscal deficit would not automatically eliminate the current account deficit – that would depend on how the gap is closed and how the private sector responds – it is a far more straightforward fix than launching a trade war. Reducing the fiscal deficit would, however, involve the difficult political task of convincing Congress to pass more responsible tax and spending bills. And unlike a high-profile trade confrontation, it wouldn't cause foreign leaders to curry favour with Trump; instead, it would shift media attention back to domestic politics and congressional negotiations. Another key factor behind the current account deficit is the strength of the American economy, which has been by far the most dynamic among the world's major players in recent years. This has made US businesses particularly attractive to investors. Even manufacturing has grown as a share of GDP. The reason employment has not kept pace is that modern factories are highly automated. skip past newsletter promotion Sign up to Business Today Get set for the working day – we'll point you to all the business news and analysis you need every morning Privacy Notice: Newsletters may contain info about charities, online ads, and content funded by outside parties. For more information see our Privacy Policy. We use Google reCaptcha to protect our website and the Google Privacy Policy and Terms of Service apply. after newsletter promotion Miran's plan, clever as it might be, is based on a flawed diagnosis. While the dollar's role as the world's leading reserve currency plays a part, it is just one of many factors contributing to America's persistent trade deficits. And if the trade deficit has many causes, the idea that tariffs can be a cure-all is dubious at best. Kenneth Rogoff is professor of economics and public policy at Harvard University . He was the IMF's chief economist from 2001-03.
