In light of the potential disruptions arising from Donald Trump’s trade policies, there is increasing scrutiny over whether the Trump administration can adopt a more coherent economic policy that minimizes harmful effects while maintaining the president's protectionist objectives.

Key administration figures, including Treasury Secretary Scott Pessen and Chairman of the Council of Economic Advisors Stephen Miran, suggest that achieving this balance is feasible.

To understand the complex economic approach of the Trump administration, one must consider Miran’s writing titled "User's Guide to Restructuring the Global Trade System," published in November 2024. While Miran asserts that this study is not a call to adopt a specific policy, the implications are notable.

His analysis draws on a hypothesis from Belgian economist Robert Triffin, proposed in the early 1960s, positing that meeting the growing demand for the dollar as a reserve asset necessitates a persistent U.S. current account deficit.

This scenario has historically led to the overvaluation of the dollar relative to what would be required for balance of payments stability.

According to Triffin, weak trade performance over time undermines confidence in the fixed price of the dollar in relation to gold.

This theory saw validation in August 1971 when President Richard Nixon suspended the dollar's convertibility into gold, leading to a re-negotiation of fixed exchange rate arrangements that quickly unraveled, giving way to the current system of floating exchange rates.

Miran applies this historical perspective to contemporary circumstances in the United States, suggesting that the events of the 1960s and 1970s provide a more relevant framework for understanding today's economic debates than the Plaza and Louvre Accords of the 1980s, which aimed to manage floating exchange rates amidst imbalances between the dollar and other currencies, particularly the Japanese yen and the German mark.

The current proposal advocates for the establishment of a global management system for exchange rates.

Miran argues that the ongoing preference of most nations to hold dollars as a reserve currency, akin to the situation in the 1960s, leads to significant dollar appreciation, exacerbating the current account deficit and adversely affecting tradeable goods production, particularly in manufacturing.

This presents a complex economic dilemma for the U.S., where it must balance the benefits of cheap financing and its global standing with the social and economic risks associated with a declining manufacturing sector.

Nonetheless, President Trump is keen on protecting domestic industry while simultaneously maintaining the dollar’s global status.

One proposed solution involves unilateral actions by the United States to depreciate the dollar, with one approach being a tightening of fiscal policy coupled with looser monetary policy, although this may conflict with the president's desire for expansions of the tax cuts enacted in 2017. Another option includes applying pressure on the Federal Reserve to lower the dollar's value, although such a move might trigger severe consequences for the economy, including rising inflation and a diminished dollar value, reminiscent of the situation in the 1970s.

Alternatively, relying solely on tariffs could also lead to dollar appreciation, negatively impacting American exports.

Miran indicates that tariffs should not only serve to protect domestic industries but also function as a negotiating tool to achieve a broader international agreement.

The objective of bolstering the manufacturing sector through a combination of tariffs and a weaker dollar necessitates international cooperation.

A potential framework, referred to as the "Mar-a-Lago Agreement," has been elaborated upon.

This agreement would address two main components: an economic aspect, which would involve easing existing restrictions, and a political dimension that would conditionally recognize certain nations as U.S. allies based on their acceptance of this agreement.

In this context, the proposal includes persuading foreign holders of U.S. debt to convert their short-term holdings into long-term U.S. dollar bonds, thus allowing greater latitude for the desired blend of expansionary fiscal and monetary policies.

This geopolitical approach could be viewed as leveraging trade agreements under the guise of protection, raising several critical questions:

First, is Miran’s analysis of the interplay between the dollar's reserve role, the chronic U.S. current account deficit, and the decline in manufacturing employment and output accurate?

The answer remains uncertain, particularly because the U.S. is not the sole high-income nation experiencing a downturn in its industrial workforce.

Second, can the proposed currency agreement enable the United States to better reconcile the dollar’s role as a reserve currency with its sectoral goals compared to other plausible alternatives?

Third, what is the likelihood of reaching an agreement with Trump concerning the intricate objectives and mechanisms outlined in this proposal?

Lastly, can Trump be relied upon to uphold any agreement he enters?

With previous actions that have raised doubts about U.S. commitments to Ukraine and NATO, trust in the administration's potential to secure a reliable agreement remains ambiguous.