Miran's Ingenious Solution...

Forcing the Sale of 100-Year USTs

Trump's Tariff Policy as a Strategic Move for Currency Adjustment

Analysts suggest that former U.S. President Donald Trump's tariff policy serves as a negotiation strategy aimed at currency adjustment. The imposition of a high 60% tariff on Chinese goods is seen as a maneuver to weaken the dollar through subsequent negotiations. In this context, some speculate that Trump may be envisioning a second "Plaza Accord," informally dubbed the "Mar-a-Lago Agreement," targeting China and the European Union.

This projection is based on a report written in November 2024 by White House economic advisor Steven Miran.

The Report’s Key Premise: Tariffs Do Not Induce Inflation

The report assumes that imposing high tariffs does not lead to inflation within the U.S. This assumption is grounded in the precedent of Trump's first-term trade war with China.

The underlying rationale lies in currency adjustments. When Chinese export competitiveness is weakened by tariffs, China is compelled to devalue the yuan, thereby maintaining its export prices in dollar terms. Consequently, the tariff revenue accrues to the U.S., while the actual burden falls on Chinese consumers, whose purchasing power diminishes due to the weakened yuan.

If the U.S. were to impose a 60% tariff on Chinese imports, China would have to depreciate the yuan accordingly. This could trigger massive capital outflows, potentially leading to economic destabilization in China.

Tariffs as a Leverage for Currency Negotiation

The report predicts that Trump could use this scenario as leverage to bring China to the negotiating table. By imposing tariffs first and then engaging in negotiations, the goal would be to engineer a controlled exchange rate adjustment. Ultimately, Trump's strategic aim is a weaker dollar (i.e., a stronger yuan), which would enhance the competitiveness of U.S. manufacturing.

The Triffin Dilemma: The Fundamental Challenge

However, this strategy is constrained by the Triffin Dilemma—the economic theory stating that a reserve currency cannot simultaneously fulfill both "liquidity" and "credibility" requirements.

To maintain global dollar liquidity, the U.S. must run trade and fiscal deficits. As government borrowing increases, bond prices decline, leading to soaring interest rates and undermining investor confidence in U.S. debt.

A Solution: Leveraging U.S. Security Commitments for Bond Sales

To address this challenge, the report suggests a novel approach: coercing countries that seek U.S. economic and security benefits into purchasing ultra-long-term 100-year U.S. Treasury bonds. Essentially, it proposes using America's security umbrella as a tool to promote U.S. debt sales.

By doing so, the U.S. could counteract the long-term rise in Treasury yields caused by a weaker dollar and declining bond credibility.

Conclusion: A Grand Strategy for Dollar Weakness and Bond Stability

In sum, Trump's trade war can be seen as a multi-layered strategy aimed at achieving both a weaker dollar and stability in U.S. Treasury yields. It presents a sophisticated solution to the Triffin Dilemma—offering a comprehensive policy framework that integrates tariffs, currency adjustments, and bond market stabilization.