As his policy turns on a dime, pity those tasked with justifying his actions
For people who believe themselves to be autonomous individuals possessed of their own free will, the past week has been a bracing corrective. Everyone, down to the most rugged individualist, is a pawn in Donald Trump’s grand caper, bouncing between his threats of economic chaos and acts of mercy. On April 9th all it took was a few dozen words from him, delaying some of his most extreme tariffs for 90 days, to transform a spreading panic in financial markets into a full risk-taking frenzy.
Given this volatility, it might seem hopeless to ascribe any strategy to Mr Trump’s on-again, off-again tariffs. But the rewards are such that bosses, diplomats and investors must try their best. Over the past week two members of Mr Trump’s economic team have offered contrasting justifications for his “Liberation Day” tariffs, helping to shed light on the thinking behind his protectionism. At the same time, though, they have exposed its flaws.
Stephen Miran, chairman of the Council of Economic Advisers, in effect a small think-tank within the White House, has provided the most complex rationale for the trade war. Shortly after Mr Trump’s election victory, Mr Miran wrote a paper for an investment firm in which he laid out the potential for a “Mar-a-Lago Accord”. Under its terms, other countries would strengthen their currencies against the dollar and provide low-cost financing in exchange for America’s security umbrella.
Since entering the White House, Mr Miran has been at pains to say that the “Mar-a-Lago Accord” reflected his own musings, not administration policy. But on April 7th he used a speech in his official capacity to lay out a watered-down version of his paper. The imposition of tariffs was, Mr Miran said, a form of “burden sharing”.
In his analysis America has paid a heavy cost in providing the dollar and Treasuries to the world as reserve assets that support the global trading and financial systems. As a result of doing so, it has suffered from currency distortions, which have led to unsustainable trade deficits and a hollowing-out of domestic manufacturing. In Mr Miran’s view, countries could share the burden in other ways: buying more from America, investing in its factories or simply sending cheques to the Treasury. It is just that tariffs stand out as the most readily available tool to fix the problem.
A royal pain
The market ructions of the past week have pointed to a weakness in Mr Miran’s thinking. Reserve-currency status may have strengthened the greenback, but it has also suppressed yields on dollar assets, allowing America’s government and firms to enjoy cheaper financing. On top of this, it has given America the power to monitor global transactions and target people or regimes it does not like with sanctions. This is what made a surge in Treasury yields during the market chaos alarming: it carried a whiff of American markets losing their reputation for good governance, foretelling a possible decline in the dollar’s standing.
Scott Bessent, Mr Trump’s treasury secretary, attempted to set the record straight. In an interview with Tucker Carlson, a right-wing podcaster, released on April 4th, Mr Bessent said that only he and the president spoke for the administration on dollar policy. He insisted that both were pursuing a strong dollar, “putting in all the ingredients” to keep it that way for the long run. In other words, there are important benefits to issuing a reserve currency, and these outweigh the burdens.
Mr Bessent offered a more refined version of Mr Trump’s view that America’s success depends on the revival of its factories. In Mr Bessent’s telling, this is about shoring up America’s industrial base. “One of the few good outcomes from covid was we had a beta test for what a kinetic war with a large adversary could look like, and it turned out that these highly efficient supply chains were not strategically secure,” Mr Bessent argued. With slight exaggeration, he says America could no longer make its own medicines, semiconductors or ships. Expressed in those terms, that might sound like a national emergency befitting tariffs.
Yet on closer scrutiny Mr Bessent’s logic is also wanting. In nearly the same breath as describing the threat to American security, he says the solution for getting away from Mr Trump’s tariff wall is to bring factories to America, including from Mexico. Although it is understandable that America wants to lessen reliance on Chinese supply chains given the two countries’ rivalry, Mr Trump’s willy-nilly tariffs have risked undermining America’s relations with its allies and neighbours, a folly that leaves it more isolated.
Moreover, Mr Bessent appeals to deregulation as a way to unleash growth. But the one thing that has restrained businesses in recent months has been Mr Trump’s radical tariff agenda, which is itself a form of regulation—one that attempts to dictate where companies invest. Hence the massive relief rally in financial markets when Mr Trump announced his pause.
In the end, intellectual justifications are only worth so much. As everyone in the administration acknowledges, the only person whose opinion really matters is the president. Advisers say that his views are, at their essence, quite straightforward: he wants manufacturing jobs back in America and believes high tariffs are needed to induce that. Still, with the latest shifts in his policy, he is stumbling into a strategy that, while unkind to most of the world, is harshest by far on China. For those tasked with explaining his actions, it is at least an easier story to tell.
Source: Economist
