The importance of being Stephen Miran: The economist influencing Trump’s tariff policies

Miran is a PhD in economics from Harvard University, where his dissertation guide was Martin Feldstein, who served as CEA chair under US President Ronald Reagan during 1982-84. Miran worked as Senior Strategist at the multi-billion dollar global investment management firm, Hudson Bay Capital, before taking over as head of the agency charged with offering the President objective advice on the formulation of both domestic and international economic policy.

A toolkit for rebalancing trade

In November 2024, while at Hudson Bay Capital, Miran wrote a 41-page ‘User’s Guide to Restructuring the Global Trading System’. It laid down a path and the available policy tools “by which the Trump Administration can reconfigure the global trading and financial systems to America’s benefit”. The essay forcefully argued how tariffs can be used as a strategic tool for “negotiating leverage with which to procure agreements from other countries to open their markets to American exports”.

That’s pretty much what Trump is seemingly doing and seeking to accomplish now.

At the heart of Miran’s essay was his analysis of the US’ external current account and merchandise trade deficits, which reached a record $1,133.62 billion and $1,212.99 billion respectively in 2024. The main reason for the large and widening deficits, according to him, was the “persistent overvaluation” of the dollar and its unique position as the world’s “reserve currency”.

Any country running trade deficits for sustained periods would experience a depreciation of its currency due to foreign exchange outflows exceeding inflows. The weak currency will, in turn, make its exports more competitive and imports costlier, bringing down the deficits over time. It works in the reverse for a country posting trade surpluses, which would see its currency appreciate from excess forex inflows. The resultant erosion of export competitiveness and increased imports will, then, bring its trade also into equilibrium.

The above system of currency adjustment to balance international trade does not, however, operate in the US. That’s because the value of the dollar isn’t a function of how much the US exports or imports. The dollar is basically a reserve currency, in which much of the world’s trade and capital flows are denominated and payments settled. The more global GDP expands, the more the demand for the dollar to facilitate international trade and borrowings.

Miran points out how not only the US, but even other countries do business with each other in dollars. None of them — be it China or Brazil — have a currency that is “trusted, liquid and convertible”. By transacting in dollars that are backed by US Treasury securities, “they are able to trade freely with each other and prosper”.

And it’s not trade, borrowings and payments alone; roughly 60% of the official foreign exchange reserves of all countries are also held in dollars.

The price US is paying

But meeting this virtually “inelastic” world demand for US dollars and treasuries comes at a cost. It leads to an overvalued dollar totally divorced from ballooning trade and current account deficits in the US.

The brunt of that cost — of “providing reserve assets for a growing global economy” — has been borne by the US’ manufacturing sector. As the dollar strengthens even during economic downturns (since the reserve asset is “safe”), US exports become less competitive, imports get cheaper and factories shut: “America runs large current account deficits not because it imports too much, but it imports too much because it must export USTs (treasuries) to provide reserve assets and facilitate global growth”.

Miran, on April 9, claimed that the US provided both reserve assets and a military defence shield to liberal democracies as “global public goods”. The burden of financing this international security and financial architecture isn’t being equitably shared though: “We are under siege by hostile adversaries (read China) trying to erode our manufacturing and defense industrial base and disrupt our financial system; we will be able to provide neither defense nor reserve assets if our manufacturing capacity is hollowed out”.

This almost echoes Trump’s allusions to “the threat to the national security and economy of the United States (from China)”, to other countries that have “ripped us off left and right”, and to how “now it’s our turn to do the ripping”.

The unilateral approach

Miran’s essay had advocated a “unilateral approach” to change the status quo, whose cost and pain inflicted on the US economy is becoming “difficult to bear”.

Unilateral tariff actions — of the sort seen over the last couple of months — may have “undesired side effects, like market volatility”. But they “provide greater flexibility to rapidly shift policy” and “increase negotiating leverage” with trading partners who should know that “access to the US consumer market is a privilege that must be earned, not a right”.

Multilateral solutions, Miran admits, carry less volatility. But they entail “the difficulty of getting trading partners onboard, which curtails the size of the potential gains from reshaping the system”. Unilateral tariff increases can create negotiating leverage “for incentivizing better terms from the rest of the world on both trade and security terms”.

Miran has essentially reiterated those views in his April 7 statement. If the world wants the US to continue providing the so-called twin global public goods, there has to be “improved burden-sharing” from all countries.

What forms can such burden-sharing take? Miran has suggested the following options.

First, the other countries “accept [higher] tariffs on their exports to the US” and provide revenue to the Treasury to finance the twin global public goods. Second, they “stop unfair and harmful trading practices by opening their markets and buying more from America”. Third, they “boost defense spending and procurement from the US”. Fourth, they “invest in and install factories in America” and thereby not face tariffs. Fifth, they “simply write checks to [the] Treasury that help us finance global public goods”.

One can expect the Trump Administration to double down on these in the days and weeks ahead.