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Dodor Myron, you are now recognized.
My view is that reindustriizing America is imperative, not only for economic reasons, but for national security. Economists must accept that we are a nation with an economy, not merely an economy with a nation to reindustrialize. Policy must focus on making the United States the best place on Earth to do business.
I'm Stephanie Flanders, head of Government and Economics at Bloomberg, and welcome to Trump Economics, the podcast that looks at the economic world of Donald Trump, how he's already shaped the global economy, and what on earth is going to happen next. Well, this week we're asking just how exactly Donald Trump would like global trade and finance to operate,
and how likely is he to get there. In just a few weeks, Donald Trump has turned one of the world's oldest security relationships, the Western Alliance, on its head. He's also unleashed a slew of tariff threats on China, Canada, and Mexico, with more to come. And at the same time, talk has intensified over a so called Mara Lago accord to deliberately weaken the dollar through a grand international bargain. Well, at Trumpnomics, we think all three of these things might
be connected. And we think that because we've read a paper written in November by Stephen Myron which first came up with the idea of that Mara Lago accord. Now, back then Myron was a former US Treasury advisor working as a strategist in the private sector, but now he's poised to be the head of President Trump's Council of
Economic Advisors. And the currency piece of that paper has been much discussed since then, especially the last couple of weeks, but not so much the grander reordering of the world trade and financial system, which is actually what the paper's mainly about, and I would have thought could be pretty appealing to Donald Trump too. So what is that new world order for trade and finance sketched out in that paper?
Does it make any sense intellectually or practically? And how might it change the world If any or all of that were actually attempted To help understand Stephen Moron's worldview and what it could mean for currencies for the global economic order, we've got two brilliant voices, as you'd expect. Welcome back to Sean Donnan, senior writer for Economics with Bloomberg. Shan, thanks again for joining us.
Wonderful to be here.
And Mark Sobel, the US chairman of OMFIF, which is the Official Monetary and Financial Institutions Forum. He's also a former colleague of mine at the US Treasury who always answered the toughest questions I had, and an International Monetary Fund official. He's been, i think it's fair to say, at the forefront or certainly in the room for international
financial diplomacy for twenty years or more. Thanks very much for joining US, Mark Pleasure concent So Sean briefly, how is security and economics interlinked in Myron and potentially Donald Trump's view of the world.
Stephen Myron's paper, which came out in November and which reads now, is a kind of very good piece of job interviewing for the job he has now. The title was you know, how to rebalance the Global Trading System? And it laid out this kind of sequence of events that they wanted to go through. And the first was based on a recognition that in their mind, the dollar is overvalued and that that's a problem for the United States and its competitiveness around the world, and they wanted
to tackle that in two ways. One was to use tariffs to kind of rebalance trade, to draw more investment to the United States, to rebuild the industrial capacity here in the United States, and it's kind of hard industrial power in the world. But they also recognize that when you increase tariffs, you are going to inevitably cause the dollar to appreciate. That's kind of the laws of economics. Mark can walk you through that and much more than
I can. But they're gonna end up with a stronger dollar, and as a result of that, they needed to come up with a plan to then weaken the dollar afterwards. And that's where this mari A Lago accord comes through. Everyone's focused on this mari A Lago accord. Very few people have focused on how Stephen Myron is talking about really erasing the boundary between America and how it uses the economic power and how it uses its national security power and to get what it wants. And this is
what we're seeing now. We're seeing Donald Trump use tariffs, use the threat of withdrawing security guarantees. We're seeing that play out in Ukraine, We're seeing that play out in the Transatlantic relationship. There's big questions about what it might mean for the future of Taiwan.
And things like that.
But that's the new model, and it's all about how do you get what Donald Trump wants? How do you get to his vision of the global economy.
That is definitely the question that a lot of people in Washington are asking themselves. Mark just on this piece, if you read the paper, what comes across very strongly is in effect this idea that America has been hugely
disadvantaged by being the world's most important country. You know that having this reserve dollar status and being the sort of lynchpin also of the security system, but specifically the currency and the US financial system being at the heart of everything has ended up forcing the currency to be overvalued and made US manufacturing less competitive cost ordinary Americans jobs. The basic idea that the US dollar is overvalued and it has something to do with America's status in the
global financial system. Is that true? Would you say that adds up?
The dollar is the world's global reserve and financing currency. It is so because of the properties of the US economy. We're the largest economy in the world, we have good rule of law, we've had respect for institutions, We've had kind of decent macro policies. We've got the deepest, most open liquid capital markets in the world, et cetera. So that brings capital into the United States, and in that sense,
it pushes up the dollar. So I do think that there is something to the idea that says that because of the attractiveness of the United States and receiving capital, that the dollar is overvalued. Whatever that means.
I guess some people would have seen like the Big mac Index and things like that, which you know, but just basically, it means that you're when you compare prices across countries, the US looks out of whag.
Yes, of course, there's no precise way to measure that, but and I do believe that you could argue, and I think the advance has made this point that.
It's a subsidied.
Consumer and attacks on manufacturers and whatnot, and you know, historically it has given rise or further impetist to protectionist tendencies in the United States, which is something that we were always dealing with at Treasury. My big problem, however, with going where you are is there's no reason why all countries should have current account bounces or whatnot. Some countries are going to have deficits, some countries are going
to have surpluses. And when you think about it, some countries with deficits, well, it's going to reflect demographics, energy endowments, strengths of institutions, economic policies, et cetera. So the IMF has this calculation. It does, and it says the current account norm of the US should be a minus two percent of GDP deficit. But in fact, if you look at our deficit right now, it's pushing four percent. So four percent isn't two percent? And why is it for
or not two? And that gets back down to questions of just bad fiscal policy. For example, and Myron and others, they're all talking about the reserve currency or the financing currency rule the dollar causing problems. They don't talk about fiscal deficits. We have massive, irresponsible fiscal deficits these days. As far as I'm concerned, we should focus on implementing decent policies at home.
To go back a little bit on that reserve currency piece, Donald Trump has made clear he wants to keep the dollar's global reserve currency status. He's even talked about punishing countries that start talking about moving away from the dollar, but he also wants to make it weaker. Is there a sort of straightforward contradiction there? Could you force people to keep treating the dollar as a reserve currency while still making it weaker and maybe us using lots of measures to support that.
Doesn't it depend on kind of how you weakend. I mean, currency markets. Currencies go up and down. They go up and down all the time, but that's a different issue. Let us say than calling for devaluation, which to me implies official action to conscientiously lower the dollar. And as you mentioned, this idea of one hundred percent tax on
those who would shun the dollar. To me, I don't really understand how you can call for devaluation and one hundred percent taxes and say that that is consistent with preserving the reserve currency role of the dollar. So I don't think that it's inconsistent to say we're going to run a decent fiscal policy which may have the result of lowering the dollars value. But I do think that calling for devaluation and taxes on others, and some of Myron's ideas like one hundred years zero coupon bonds or
taxes and fees on users. I think those are fundamentally inconsistent with the reserve currency preserving the preserve currency role of.
The dour Sean.
And say this, having already talked about it for fifty minutes, we just want to get too obsessed with the details of this document. But I think it is interesting to sort of think about how Donald Trump's first few weeks has chimed with what was in that paper. There's quite a lot of areas where Myron's kind of assuming that the things that cause a lot of volatility or uncertainty, like the tariffs will be done gradually. Well, seems to be a greater appetite for volatility and uncertainty from the
administration so far in the way it's addressed that. Arguably, you could say the same on the security front. How much do you think is following the script suggested by Myron?
I think you can definitely see bits of the script in there, right. I mean, you can definitely see this broad idea of we're going to break down the barrier between national security policy and economic policy, and we're going to use one to reinforce the other, and vice versa.
At the same time.
What we've seen is the same thing we saw there in the first Trump administration, and that is a pretty chaotic policy making a lot of differing internal voices. We are seeing again, whether it's on tariffs, this kind of the rolling out of really aggressive tariffs on Canada and Mexico, and then within forty eight hours they're kind of rolling back in a big way. And with Ukraine, a live debate playing out via leaks and Oval Office comments on what a peace deal might look like, what a minerals
agreement with Ukraine might look like. I would say there is one kind of overarching aim above it all, and that is that Donald Trump wants America to be feared again. And that's his vision of power, and that applies to tariffs, that applies to national security. It's not that he wants America to be this kind of beacon on the hill of democracy and free markets and that the world kind
of flocks towards. He wants to be able to dictate how the world runs, and he believes that fear is the most powerful thing to see and we're seeing elements of that clearly in all sorts of policies that have rolled out. But Beneath that kind of broad goal, it all looks pretty messy, and it's not clear that these goals kind of operate or can operate together.
Can I come back to the mirone article a little bit and Sean, it's obviously not a zero some world we live in.
But to be more granular, I think it's a zero some world that Donald Trump lives in. Genuinely.
Well, yes, But the point I wanted to make I want to go back to being somewhat of a point. He had economics type, unlike you guys in this discussion, I wanted to talk more about some things I don't like about the Myron article. Sure, the implication is that the dollar's global role as bad for America. The French always talked about the exorbitant privilege. I believe the dollar's
role is a net plus, not exorbitant. You know, we get some maybe interest rates are lower, we're shielded from foreign exchange risk, we can use the dollar for geopolitical leverage via sanctions. The dollars are valued, but on balance net plus, if we're trying to disrupt alliances and everything, I just don't know what is the end goal, the end vision.
Donald Trump famously approaches pretty much everything as a bargain is about a deal, and it's about the relative strength of each side in a deal. And by definition, you have most leverage in doing a deal with your strongest partners because they're the ones who are already most have
most to lose by damaging the relationship with you. So you could say it may be counterintuitive, but you could say it is a natural place to start if you have the deeply transactional view that Donald Trump has, and if you feel kind of fundamentally that the US shouldn't pay any price for being the strongest economy. Yes, it gets to be the reserve currency, but it should be
paid for by other people. If America is the strongest, and they've been clever enough to be the strongest, and by the way, also willing to put loads of American troops at risk that other countries are not willing to put at risk in defending the free world, then why not have everyone else pay for that. It's like America's performing a service and you make your allies who are getting the most value out of you pay the most.
I mean mark. It may not be an attractive vision, but it's perfectly rational.
First of all, I have to say I've always thought it, certainly in recent decades, that Europe needed to step up more, step up more on defense.
So I have no problem with that.
He's only one who's got them to do it, though, combination of him and.
Putin, well, I guess the more Putin than him. I think the magnitudes the way of getting it done are very questionable. But again, if you're going to tell me that the Trump vision is to get others to pay
for the US security guarantee, maybe that's a vision. Of course, it seems now that they're all going their own way and rejecting the US, and this is going to have really harmful of consequences I think for global relations and economics, and it's not going to make us more secure, and it's not going to make us more prosperous.
Okay, but take the reserve currency thing. The world benefits from there being a reserve currency. You know, we can denominate the cost of oil in a single currency. Everyone knows what they're talking about when they talk about ten dollars. Why shouldn't the world pay for that? Why does America have to pay the negative of you know, being overvalued or whatever one might identify.
The United States benefits from that.
The last decades have been remarkable for the history of mankind and prosperity, and so the eighty years of the postwar US hegemony has been nothing to sneeze at.
It depends where you're sitting in the US economy right as to how you benefit from the US being or are hurt by the US being a reserve currency. If you're a manufacturer, you can make an argument that you are hurt because your export's are less competitive as a result of a strong dollar, although other people will point out that actually you can buy imported components in intermediate goods for cheaper as a result of a strong dollar, and that doesn't matter as much in terms of competitives.
If you're a homeowner or you're looking to buy a home in the United States, you probably benefit from lower interest rates than you would otherwise as a result of demand for US assets from overseas. Likewise, if you're an entrepreneur like Elon Musk, chances are your cost of capital growing up was lower than it might be in other places as a result of the US's reserve currency status.
So the issue that we have here now is that it's the manufacturers and the protectionists who are driving the view of the dollar, and and and it's a downside as a reserve currency. And you know, at some point that might shift again. And this gets to a bigger issue which I think we was gonna last beyond Donald Trump, and that is America's power in the world and the place of the dollar in the world is based on decades of trust, right of building trust, It's based on
legal certainty. It's based on this idea of America as a kind of having a coherent vision of the world that's changed over the last decade. Right, We've kind of flipped back and forth. We go from a big government paradigm under Joe Biden to now a small government paradigm under Donald Trump. We've gone from a kind of gentle giant view of a superpower under Joe Biden and Barack Obama to one of you know, the big gorilla kind
of rampage through the world under Donald Trump. And I think that issue of trust, that issue of certainty, and what America is and what America wants and what America offers that going away is perhaps more damaging to American power than any of these kind of little bits of policy that people like Stephen Meyron lay out in this paper.
Okay, so there's a final chunk of things that I just want to get to because all of this sounds a bit ephemeral and sort of we're talking about this paper and is it or is it not relevant for Donald Trump, and we've probably gone as far as we
can go on that. What I'm thinking about as a result of this conversation is, Okay, what we have learned about Donald Trump in the last few weeks is when he decides that he really wants something, or he wants to be known for something like finding peace in Ukraine, he will go further than anyone expected to make that happen, including being very tough on very close allies in a
way that we wouldn't expect. If he decides that the next big thing he wants is a weeker dollar, then we will probably all be talking a lot more about a mar Lago Accord or some version of that mark. If Donald Trump woke up one morning and decided he wanted a week a dollar as much as he wants to be known for a piece deal in Ukraine, how could it go about that? I mean how much, what might that look like and wouldn't have any chance of success.
So this week he's managed to get the dollar down by creating growth fears and undermining our long standing relationships. I've already mentioned undermining the underpinnings of the dollars status would be one way to do it. And more to the point of what I think you're asking, Obviously he can job own the dollar down. He's probably already done that. That's not going to be very effective. The Treasury could
sell dollars and buy foreign currency. Treasury doesn't have that many dollars, but they could mobilize the Exchange Stabilization Fund balance sheet in different ways. The Fed can print unlimited dollars. It wouldn't likely play ball, but it could be done.
Theoretically, does network When one country does it by themselves.
It's certainly less effective.
I don't think that central banks and financial authorities and the G three really think that intervention is all that effective absent fundamental policy shifts. Maybe there could be some concerted type of intervention operation these days, but again, central bank's target inflation, not exchange rates.
We've already seen in the Ukraine context that he's sort of crossed a lot of lines that people didn't expect to be crossed. And it has to be said, the Ukraine invasion has caused everyone to do that. We've done things like seizing sovereign central bank reserves that we've never done before. We did that to the Russian Central Bank, So I'm sure at the IMF that caused a bit of headaches and head scratching whether or not we should
go there. What are the kind of out of the box tools he could use to pressure other countries to collaborate, even if they didn't particularly want a week a dollar.
I recently had to speak on this topic, and what I started focusing on is not so much currency action per se, but how to associate currency issues with trade measures. So under Obama and Trump, there were currency chapters as part of trade deals or discussions.
I didn't even know that.
So TPP made tackling currency manipulation a principal negotiating objective, and there was a kind of a side understanding and TPP before it's derailed that the finance ministers would meet and discuss these issues.
That was a trade deal that was negotiated under the Biden of Minnesota. That's right, yes, with Asian economies.
But now under USMCA, there was a currency chapter inside the deal. If you remember the Phase one deal with China, there was a currency chapter. Chinese just committed to doing what they were doing, but but whatnot?
So there's that. Then there was under.
The Trump administration at the very end, there were currency undervaluation countervailing duties a terrible idea as far as I'm concerned, but they did assess currency evaluation.
Could you make it harder for countries to access the central Bank the FEDS swap facilities, I don't know. There must be a range of things that the US has within its gift that are beneficial for other countries financially.
Look in my senses, he cares about the reputation of the dollar and the kind of branding of the dollar as a reserve currency. And he cares about having a vote of confidence from financial markets, whether that's currency markets or whether that's equity markets or bond markets. There's a
kind of branding concern around the dollar. I think what he cares about in terms of the level of the dollar depends a little bit on who the last person he was talking to cares about the easiest way, and Mark pointed to this, the easiest way to bring down the value of the dollar, and also by the way the trade deficit is to have a recession in the United States.
And one of the.
Things that you've seen creep into markets in recent days is this question of whether the Trump administration is somehow intentionally trying to tank the economy through some of its policies, whether it's tariffs, whether it's immigration, whether it's the kind of austerity campaign that Elon Musk and Doze or are waging on the federal government, but in terms of workforce and spending, and that that somehow is all about bringing the dollar and the ten year yields down to a
level that somehow is of more advantage to the US economy in the long term. That seems like a pretty destructive way to go about it. I have no evidence that this is actually what the Trump administration is thinking, but it gets to the point of.
The surest way to do some of the.
Things that Stephen Myron lays out, other people around Donald Trump lays out is to kind of attack America's place in the world and its growth at home. And it's broader exceptionalism.
Well One thing I did learn from spending a few years looking at things from the other side of the journalistic divide as an official US Treasury is people don't even in this administration. I suspect people are not sitting plotting to try and force a US recession. But we shall see. Mark Soble, Sean Donnan, thank you so much.
I am struck by the quote actually at the end of that paper by Stephen Myra, and he says there is a path by which the Trump administration can reconfigure the global trading and financial system to America's benefit, but it is narrow and will require careful planning, precise execution, and attention to steps to minimize adverse consequences. Well, we'll wait and see all of that then.
Thank you very much, Thank you, thanks so much for having me.
Thanks for listening to Trumpnomics from Bloomberg. It was hosted by me, Stephanie Flanders, and I was joined this week by Sean Donnan and Mark Sobel. Trump Andomics is produced by Summer, Sadi and Moss and with help from Chris Martlu and sound design by Blake Maple's Brendan Francis Newnham is our executive producer, and to help others find the show. Please rate it highly and review it wherever you listen to your podcast