Analyzing The Impact Of Trump's Economic Policies On Global Trade

According to Blockworks, as investors and market participants assess the implications of Donald Trump's election victory and the Republican sweep in Congress, attention is turning to how Trump's distinct economic and global trade policies will unfold. The challenge now lies in determining which campaign promises are feasible and likely to be implemented. In a recent discussion with Dr. Stephen Miran, a fellow at the Manhattan Institute and senior strategist at Hudson Bay Capital, insights were shared on understanding the potential effects of increased global tariffs and protectionist economic measures. Dr. Miran, who served at the US Treasury during Trump's first administration, has authored a paper titled "A User’s Guide to Restructuring the Global Trading System." This paper explores whether a heavy-handed tariff policy will lead to inflation. The discussion began with the concept of the "Triffin world," which refers to the consequences of being the global reserve currency. The US dollar's status has led to an overvalued currency and persistent fiscal and trade deficits. This situation, known as Triffin's dilemma, arises when the global GDP share of the reserve currency issuer declines, as seen in the US in recent years. This results in widening deficits and a strain on balancing domestic and international priorities. Dr. Miran suggests that one way to address these imbalances is through tariffs or currency devaluation to align the US dollar with interest rate differentials. The critical question is how a tariff-heavy policy might affect domestic inflation and how much of the price increase will be passed on to consumers. The paper highlights that the impact of tariffs depends on how much the currency offsets the price increase. Additionally, the success of these tariffs is influenced by the current business cycle. The paper and interview also discuss the potential role of multilateral and unilateral currency agreements in preventing the US from falling into a Triffin dilemma. Understanding the most effective type of currency agreement requires further exploration. This analysis provides a roadmap for navigating the complexities of global trade and economic policies in the context of Trump's administration.