Donald Trump has once again spectacularly created a great deal of disorder with his tariffs, but these problems need to be analyzed calmly in the context of the works of Stephen Miran, Robert Triffin and monetarism…
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Donald Trump is still causing a lot of noise for a popular public. This is the tip of the iceberg, but in reality, his gesticulations do not reveal that he is only applying the conclusions of scholarly economic debates, so-called theoretical, that is to say drawn from the reasoning, work and debates developed long ago by renowned economists, including and especially Robert Triffin.
The aim of this article is to explain and make clear to any sensible person the issues underlying this story of tariffs aggressively imposed by Donald Trump…
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Stephen Miran published the result of his work in A User’s Guide to Restructuring the Global Trading System in November 2024.
It is in this document that he develops his theory, which forms the basis of Donald Trump’s tariffs.
The starting point is the Triffin dilemma.
Robert Triffin very pertinently analyzed the (long) term consequences of the Bretton-Woods agreements, which were at the origin of the adoption of the US dollar as the international reserve currency.
From the end of the Second World War, the rest of the world lacked this reserve currency that the USD dollar was to become, and that is why the American authorities (of the United States) had the idea of making USD dollars available to their counterparts in Western European countries so that they could buy American products that they lacked to get their war-devastated economies back on track.
These USD dollars made available to the central banks of Western Europe (in the form of loans) were called eurodollars.
These were therefore USD dollars that were deposited in the US American banking system and were loaned to the central banks of Western European countries from 1944 onwards, hence their name, eurodollars, without a capital letter or a hyphen and with no connection to what would become much later… this unnatural currency that is the euro!
Indeed, companies in European countries found it difficult to produce goods and services at the end of the war; they were therefore unable to export to the United States. As a result, they could not acquire USD dollars to buy made in USA products that they needed.
Thanks to these eurodollars, (Western) European companies were able to quickly get back up and running and therefore export to the United States, which allowed the central banks of European countries to recover USD dollars as normal, which they were able to make available to companies that needed them.
This system worked well for the greater benefit of European and American companies and their respective populations.
However, Robert Triffin very quickly diagnosed that the USD dollar, as an international reserve currency, would ultimately create serious dysfunctions in the United States…
Indeed, from the end of the 1960s, non-American companies needed very large quantities of USD dollars, and to meet this demand, the Americans had to import more and more products from non-American countries, thus increasing their trade deficit.
From the early 1970s, confidence in the USD even began to be challenged.
Secretary of the Treasury John Bowden Connally, Jr. then recklessly declared that “the dollar is our currency, but that’s your problem” because the dollar subsequently became a major problem for Americans to the point that it currently presents a risk… of a systemic nature!
Indeed, the increase in the wealth of the rest of the world, and in particular that of Asian countries (including and especially China) has forced America to increase the mass of eurodollars, i.e. USD dollars held outside the United States.
[The share of US GDP in relation to the GDP of the rest of the world fell from 1960 to 2010 and has risen slightly since then.]
Document 1:
However, these eurodollars come from the increase in exports from the countries of the rest of the world to the United States or, to put it another way and the other way around, these eurodollars come from the increase in American imports not offset by exports.
Consequently, the US trade deficit has widened over the years, according to Stephen Miran’s presentation.
Document 2:
However, the data provided by our friend Fred from St. Louis based on that of the BEA (U.S. Bureau of Economic Analysis) do not entirely agree with Stephen Miran’s analyses (and graph 3) above!
Indeed, the balance of current accounts (taken from the balance of payments) of the United States began to become in deficit after the first quarter of 1991, plunging deeply from 2020 to reach a low of… 1,210 billion dollars at the end of the third quarter of 2024!
Document 3:
Furthermore, the balance of trade in the strict sense, i.e. the difference between exports and imports of goods and services alone, only worsened from the first quarter of 2020 onwards and by amounts (300 billion dollars) that are much lower than the deficit in the balance of current accounts recorded in the balance of payments, which has been in the around 1,100 to 1,200 billion dollars over the last three quarters!
Document 4:
As a reminder, the balance of current accounts, which is part of the balance of payments, consists of the trade balance stricto sensu, i.e. the difference between exports and imports of goods and services alone, to which are added other payments, mainly transfers of funds (net) to the rest of the world, and it is these that are the main cause of the United States’ deficits vis-à-vis the rest of the world, and not the deficit caused by an excess of imports over exports.
Conclusion: Stephen Miran’s work does not correspond to the indisputable data of the US balance of payments and Donald Trump’s increases in tariffs are therefore not justified!
They are completely wrong.
Admittedly, the deficit in the balance of trade in the strict sense (exports minus imports) of around 300 billion dollars per year is significant, but it is low in relation to the GDP of 29,724 billion dollars because it is only… 1.0%!
It is the current account deficit of 1,100 to 1,200 billion dollars that is the most worrying. It is three times greater than the balance of trade (in the strict sense). The causes should be examined more closely.
This deficit is apparently due to net capital transfers.
However, this deficit in the current accounts is offset by investments by USD holders in Treasury securities (UST), which automatically and necessarily balance the United States balance of payments.
This back and forth between net transfers of USD and investments in UST results in an abnormal decline in the yields of these UST, which distorts the financial markets, which should regain their freedom within the framework of a well-ordered liberal capitalist system.
Robert Triffin could not imagine at Bretton Woods and subsequently that international capital movements of this magnitude could develop.
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The imposition of these tariffs, which is the result of errors of analysis on the part of Stephen Miran, has considerable negative consequences in the context of monetarism…
Indeed, end consumers will reduce their spending because of the foreseeable increases in the prices of imported products, and they have even already anticipated them!
As a result, they will keep a larger share of their income on hold, which will therefore not be spent in full, which then corresponds to a decrease in the velocity of circulation of the M2 money supply and therefore a further increase in this monetary aggregate.
The same applies to company directors, who will postpone the investments they may have planned before the imposition of these tariffs, which also has the effect of increasing the M3-M2 monetary aggregate, which consists of the overall cash flow of companies.
Thus, the hypertrophy of the overall money supply M3 will worsen, even though it already far exceeded the standards, corresponding to 73% of GDP, whereas this ratio should only fluctuate within a range of 50 to 60%!
Document 5:
Indeed, as Arthur Laffer has repeatedly and pertinently pointed out, sound money is the first pillar of Reaganomics. This has always been respected since the post-war period and has been the basis of America’s success.
As a reminder, the M3 money supply is made up of the sum of the M1 aggregates (positive balances of current accounts and banknotes, i.e. 15% of GDP), the M2-M1 aggregate (deposits in savings accounts, i.e. 40% of GDP) and the M3-M2 aggregate (corporate cash holdings, i.e. 25% of GDP), all of which corresponds to 55% of GDP.
Document 6:
This economic policy, based (wrongly) on a drastic increase in tariffs, accentuates the monetary bubble, which was already out of all proportion.
As a final reminder, a monetary hypertrophy is always lethal in the long term, which means that a major crisis (a momentum crash) is currently brewing in the United States.
The financial turmoil of recent weeks is only just beginning.
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Click here to read Stephen Miran’s basic document on tariffs.
Click here to read this article on my website in French.
I have addressed in numerous articles the problems related to variations in monetary aggregates (free access) and their consequences on the stock markets (for subscribers).
In addition, I provide essential advice for any investor so wise as to take advantage of the coming crisis to increase financial capital…
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