The Significance of Stephen Miran: The Economist Shaping Trump's Tariff Policies

Few individuals may be familiar with Stephen Miran.

He is the individual chosen by Donald Trump to serve as the chairman of his Council of Economic Advisers (CEA) and is arguably the most eloquent advocate for the President’s policy of extensive “reciprocal tariffs.” These tariffs pose a significant risk to the current international trading framework and have instigated substantial declines in stock markets worldwide.

“Most economists and some investors regard tariffs as at best counterproductive and at worst severely damaging. They are mistaken,” Miran asserted on April 7, the same day Trump cautioned China about imposing an additional 50% import duty on its products. This new duty, which raises the total tariff to 104%, is set to take effect on April 9.

Miran holds a PhD in economics from Harvard University, where he was mentored by Martin Feldstein, who chaired the CEA under President Ronald Reagan from 1982 to 1984. Prior to his current role, Miran served as Senior Strategist at Hudson Bay Capital, a multi-billion dollar global investment management firm, before assuming leadership of the agency responsible for providing the President with impartial advice on domestic and international economic policy formulation.

A framework for trade rebalancing

In November 2024, while still at Hudson Bay Capital, Miran authored a 41-page document titled ‘User’s Guide to Restructuring the Global Trading System.’ This guide outlined strategies and policy instruments “that the Trump Administration can utilize to reshape the global trading and financial systems to favor the United States.” The paper compellingly argued that tariffs can serve as a strategic mechanism for “negotiating leverage to secure agreements from other nations to open their markets to American exports.”

This approach appears to align closely with Trump’s current objectives and actions.

Central to Miran's essay is his examination of the United States' external current account and merchandise trade deficits, which reached unprecedented levels of $1,133.62 billion and $1,212.99 billion, respectively, in 2024. He attributes the significant and expanding deficits primarily to the "persistent overvaluation" of the dollar and its distinctive role as the world's "reserve currency."

Typically, a country that experiences prolonged trade deficits will see its currency depreciate, as foreign exchange outflows surpass inflows. This depreciation makes exports more competitive while increasing the cost of imports, ultimately reducing the deficits over time. Conversely, a nation with trade surpluses will witness its currency appreciate due to excess foreign exchange inflows, leading to diminished export competitiveness and higher import levels, which will eventually balance its trade.

However, this mechanism of currency adjustment to achieve equilibrium in international trade does not function in the United States. The value of the dollar is not determined by the volume of US exports or imports. Instead, the dollar serves as a reserve currency, with a significant portion of global trade and capital transactions conducted in it. As global GDP grows, so does the demand for dollars to facilitate international trade and borrowing.

Miran highlights that not only does the US engage in transactions in dollars, but other nations also conduct business with one another using the same currency. Countries such as China and Brazil lack a currency that is deemed "trusted, liquid, and convertible." By using dollars, which are supported by US Treasury securities, these nations can trade freely among themselves and thrive.

Moreover, it is important to note that approximately 60% of the official foreign exchange reserves held by countries worldwide are denominated in dollars.

The Unilateral Approach

Miran's essay proposes a "unilateral approach" to alter the existing situation, which he argues imposes significant costs and challenges on the US economy.

Unilateral tariff measures, similar to those implemented in recent months, may lead to "unintended consequences, such as market instability." However, they also "offer increased flexibility for swift policy adjustments" and "enhance negotiating power" with trade partners, who must recognize that "access to the US consumer market is a privilege that must be earned, not an entitlement."

Miran acknowledges that multilateral approaches tend to be less volatile. Nevertheless, they present "challenges in securing the cooperation of trading partners, which limits the potential benefits of reforming the system." Unilateral tariff hikes can generate negotiating power "to secure more favorable terms from the global community regarding both trade and security."

Miran has largely reiterated these points in his statement on April 7. He emphasizes that if the international community desires the US to continue providing essential global public goods, there must be "enhanced burden-sharing" among all nations.

What forms might this burden-sharing take? Miran has proposed several options.

Firstly, other nations could "accept [higher] tariffs on their exports to the US," thereby generating revenue for the Treasury to support global public goods. Secondly, they could "eliminate unfair and detrimental trading practices by opening their markets and increasing purchases from the US." Thirdly, they could "increase defense spending and procurements from American sources." Fourthly, they could "invest in and establish manufacturing facilities in the US" to avoid tariffs. Lastly, they could "simply provide financial contributions to the Treasury to assist in financing global public goods."