A User’s Guide to Restructuring the Global Trading System?

Read closely

A User’s Guide to Restructuring the Global Trading System, published in Nov 2024, by Stephen Miran. Who is Miran and why does he matter? It so happens that he is Trump's selection for Chair of the Council of Economic Advisors, meaning he is a key architect of Trump's economic policy. Since I have no formal writing projects at the moment and I would like to stay sharp, here is my analysis of this document, integrated with my analysis of the administration's fiscal and monetary moves. I will then add some speculative social science fiction for what it could mean if enacted.

Miran's "guide" is a very good technical narrative of what the administration is trying to achieve. That is, reading it makes the administration's statements make sense, even if I believe the conclusions drawn are incorrect. Here's a summary / synthesis:

The goal of the administration is to shift the current monetary regime that has been in place since the Bretton Woods Agreement in 1944. There are pros and cons to every global trading regime. Since BW, USD has been the global reserve currency, and since the Nixon Shock in 1971, a fiat dollar standard has been the global reserve system. The dollar reserve system provides massive benefits to the US, such as cheaper borrowing costs and financial extraterritoriality (i.e., the US can unilaterally influence global finance). The downsides, Miran argues (and I agree with), are that a dollar currency reserve system creates massive and unsustainable distortions in the US economy.

As global GDP grows relative to US GDP (i.e., as the ratio of US GDP to all GDP decreases), the burden of providing reserve assets through persistent trade deficits becomes increasingly damaging to US export sectors. This is known as the Triffin dilemma: as global trade expands, countries need more dollar reserves, but to supply these dollars, the US must continuously run larger trade deficits relative to its own economic size, which makes its tradeable sectors less competitive and hollows out domestic manufacturing. Put simply, more global trade means more demand for dollars, since things are traded in dollars. More dollar demand means a stronger dollar. A stronger dollar means less competitive US exports. Less competitive exports means more manufacturing moves overseas. More overseas manufacturing means more global trade, and the loop repeats.

This loop explains the current administration's seemingly disconnected statements about defense spending, dollar policy, eliminating the deficit, and trade, which converges on an internally coherent strategy. For example, when Pete Hegseth said this week that countries can no longer rely on US defense guarantees, it's connected to Miran's proposed solution to the Triffin dilemma. The plan outlined is creating the "Mar-a-Lago Accord" (yes, really), where countries will be pressed to either help bear the costs of the global trading system or face exclusion from its benefits, creating a two-tier global trading system. Countries inside the security umbrella need to accept currency adjustments that benefit US manufacturing, pay for their own defense, invest in US production, and convert their T-bill holdings into a new long-term bond mechanism with very low rates. Countries outside this umbrella face high tariffs, no security, and limit access to US markets.

Lastly, this also relates closely to the idea of reducing or destroying the deficit. Here is how this all comes together, and where things could go wrong. Miran argues that this will deflate the deficit by the following mechanisms: (1) direct revenue from tariffs (speculative); (2) the sovereign wealth fund that was announced (not a bad thing, inherently), meaning the US will add positive-sum natural resources and its gold reserves to its balance sheet -- from this point on, the deficit doesn't look so bad; (3) burden sharing -- the allied countries converting their T-bills to a new bond mechanism reduces the payment; (4) ahem, catastrophic inflation; and (5) reshoring manufacturing.

Here's my speculative fiction: China retaliates, since it is a massive fuck you to its trillions in US bonds it is holding. Second, it suggests an intentional stagflation crisis, 1970s and 80s levels of inflation (or higher); see this recent analysis of right-wing degrowth policy for more concrete writing on this. Lastly, more broadly, a market panic-global security crisis feedback loop is an obvious unintended consequence. Suffice to say this would be the biggest shock to global trade since the Nixon Shock, and again, this coheres with the Nixon-like attitude Trump is taking toward the executive office and his likely incoming try at influencing (or even dismantling) the Federal Reserve.

AI tl;dr: Trump's incoming economic advisor proposes a radical overhaul of the global financial system called the "Mar-a-Lago Accord." The plan aims to fix problems with the dollar being the world's reserve currency by creating a two-tier system: allies must help fund U.S. deficits and accept a weaker dollar, while others (like China) face high tariffs and reduced market access. Tools include 60% tariffs on China, a new sovereign wealth fund, and forced restructuring of Treasury debt. Major risks include Chinese retaliation, severe inflation, and potential market panic. It would be the biggest change to global trade since Nixon ended the gold standard in 1971.