Introduction
The aim is to clarify the possible logic and思路 behind Trump's series of actions from the perspective of the United States. With numerous variables at play, understanding what the Trump government focuses on, what it may concede, and how these elements are interconnected is crucial. The main basis for this analysis is an article titled "A User's Guide to Restructuring the Global Trading System" written by Stephen Millan, the current White House Economic Council Chair. When it was first published in November last year, many of its policy suggestions seemed radical. However, as Trump's policies gradually aligned with these recommendations, the article gained significant attention, and the "Mar-a-Lago Agreement" mentioned within it became a hot topic on Wall Street.
Key Objectives of the US Government
The US government has several related objectives, including economic growth (or employment growth), price stability, manufacturing reshoring, reducing the trade deficit, improving government finances, restricting the development of rival countries, and maintaining the dollar's status as an international reserve currency.
Economic Growth
Although economic growth is important, the US economy has been relatively strong compared to other major countries in recent years. This marks a significant shift in US policy direction. In the past few decades, most US policies prioritized economic growth, often sacrificing other goals. However, since Trump took office, many of his policies have sacrificed economic growth for other purposes.
Price Stability
Price stability is mainly the responsibility of the Federal Reserve. It is not the primary goal of the White House, and in case of problems, the blame can be shifted.
Dollar's International Reserve Currency Status
Despite Millan's repeated emphasis in the "Guide" that Trump will maintain the dollar's international currency status, this may be a case of "protesting too much." Many of Trump's policies potentially threaten the dollar's hegemony. Historically, the US has benefited greatly from the dollar's status, but if we consider the dollar's status as a negotiable goal for Trump, many of his policies become more understandable.
Core Focus: Manufacturing Reshoring, Trade Deficit Reduction, and Rival Country Restriction
The remaining three objectives - manufacturing reshoring, reducing the trade deficit, improving government finances, and restricting rival countries - are the core concerns of the Trump government.
Reasons for US Manufacturing Hollowing Out
The dollar's status as a global currency has led to a surge in global demand for the dollar, causing it to appreciate. This has brought benefits such as a large and continuous financial account surplus, allowing Silicon Valley companies and Wall Street to access low-cost financing. The strong dollar has also given the US powerful purchasing power and financial jurisdiction. However, it has also led to a financial account surplus and a current account deficit, resulting in manufacturing hollowing out. Millan's article objectively analyzes this logic, unlike Trump's sometimes simplistic approach of blaming China or other trade - surplus countries. The rapid rise of China may have made the US view manufacturing hollowing out as not only an economic but also a national security issue.
US Government's Fiscal Problem
The US government has a continuously expanding trade deficit, leading to the national debt constantly breaching the debt ceiling. In the past, this was not a major issue due to low interest rates. However, after the 2008 global financial crisis, the Federal Reserve's interest rate hikes have increased the debt cost. The 10-year Treasury bond rate has risen significantly, and the government's interest expenditure has more than doubled in three years. This has led to public dissatisfaction with former Treasury Secretary Yellen, as people believe she should have issued more long-term debt when interest rates were low.
Among these three core objectives, the government's fiscal situation is the most important. While it may be difficult to immediately restrict China or reverse manufacturing hollowing out, improving the government's fiscal situation is crucial. This does not mean achieving a reduction in the debt amount or a fiscal surplus but rather stopping the trend of increasing spending and borrowing.
Trump's Policies Aimed at Alleviating US Fiscal Pressure
Trump has implemented several policies to address the US fiscal situation. For example, he signed an executive order to establish a US sovereign wealth fund in February to increase fiscal revenue. The DOGE Efficiency Department, which was supported by Musk, aims to cut fiscal spending. Treasury Secretary Millan has also mentioned that his two most important tasks are to lower the 10-year Treasury bond rate and reduce oil prices, both of which can lower the US government's borrowing costs.
In addition, Trump has threatened to withdraw from the WHO, cut funding for NATO, the United Nations, the International Atomic Energy Agency, and other organizations, and reduce humanitarian aid. This is mainly because the US does not want to invest in areas with no immediate returns. In the military aspect, Trump believes that the US should not bear the majority of NATO's military spending and has pressured other NATO members to increase their military spending.
Core Policies in Millan's "Guide"
The two most core policies in Millan's "Guide" to address the three major objectives are tariffs and monetary policy.
Tariffs
Tariffs have several potential benefits according to Millan's plan: promoting manufacturing reshoring by restricting imports, increasing government tax revenue, and limiting the exports and manufacturing of rival countries. However, tariffs also have significant side effects. They can cause inflation and increase US prices, shifting the cost to consumers and downstream producers. They can also trigger retaliation from other countries, suppressing economic growth and total demand.
Although Trump may be willing to compromise on price and economic growth, the Federal Reserve is concerned about these issues. If tariffs lead to inflation, the Federal Reserve will raise interest rates, increasing the government's debt cost. Millan believes that tariffs are unlikely to cause inflation because other countries' central banks may devalue their currencies to offset the impact of US tariffs on their exports. However, this theory has a fundamental contradiction: tariffs may lead to a stronger dollar, which contradicts the goal of reducing the trade deficit and promoting manufacturing reshoring.
Monetary Policy
The main goal of monetary policy is to devalue the dollar. Millan proposes two possible strategies: a multilateral strategy and a unilateral strategy.
Multilateral Strategy: The "Mar-a-Lago Agreement"
The "Mar-a-Lago Agreement" is similar to the 1985 Plaza Accord. It aims to have countries help the US sell dollars and extend the maturity of their US Treasury bonds. This is intended to devalue the dollar and reduce the US government's borrowing costs. However, this agreement is difficult to achieve as it requires the cooperation of other countries, which may face significant costs such as currency appreciation and increased interest rate risk.
Unilateral Strategy
The unilateral strategy includes charging a fee for foreign official institutions to purchase US Treasury bonds and accumulating a reserve fund. However, these strategies also have many flaws. Charging a fee for Treasury bonds may increase the government's debt cost, and accumulating a reserve fund requires a large amount of capital that is difficult to obtain.
Summary and Evaluation of Trump's Policy Logic
In summary, Millan's policy suggestions have many contradictions. Tariffs may lead to inflation and higher interest rates, while the dollar's appreciation may further worsen the manufacturing situation. The US government's desire to maintain the dollar's status as an international reserve currency while reducing the trade deficit and promoting manufacturing reshoring is also difficult to achieve.
Trump's implementation of tariffs was hasty and led to market panic. His policy changes have also damaged the US government's and the dollar's credibility in the market. However, it is possible that Trump is thinking from a higher perspective, as his policies may lead to economic recession, which could lower interest rates and reduce the trade deficit.
It is also ironic that some of Trump's trade and monetary policy goals are in line with China's interests. For example, both the US and China want to promote manufacturing reshoring and lower interest rates. Given the complex financial, trade, and supply chain connections between the two countries, it is impossible to completely cut off relations.
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