US President Donald Trump holds a chart as he delivers remarks on reciprocal tariffs throughout an occasion within the Rose Backyard entitled “Make America Rich Once more” on the White Home in Washington, DC, on April 2, 2025.
BRENDAN SMIALOWSKI/AFP through Getty Photos/AFP
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BRENDAN SMIALOWSKI/AFP through Getty Photos/AFP
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Amid the dizzying commerce actions President Trump has taken in latest days, it was simple to overlook a outstanding speech the White Home launched by one in every of Trump’s high financial advisors, Stephen Miran. In that speech, Miran hinted that the White Home could be working to ascertain a brand new form of world financial order that goes past simply larger tariffs.
Because the White Home has already made fairly clear, its financial targets embrace lowering or eliminating America’s commerce deficits with overseas international locations and boosting home manufacturing. Tariffs are one large device for these targets. However the current world financial system is constructed on extra than simply low tariffs and free commerce. It is constructed on a particular position that the U.S. greenback performs within the world economic system. The greenback is the “worldwide reserve forex.” It is the principle forex the world makes use of to commerce and save.
This particular position for the greenback could be traced again to 1944. That is when world monetary leaders met at a elaborate lodge in Bretton Woods, New Hampshire, and hammered out the main points of a brand new world financial order that will take maintain after World Struggle II ended. (For extra on the fascinating historical past of this, learn this old Planet Money newsletter and take heed to this Planet Money episode).
On this latest speech and former writings, Miran has complained that — whereas this particular standing for the greenback provides advantages to america and the worldwide economic system — it additionally strengthens the greenback, making American exports costlier and U.S. manufacturing much less aggressive. He has instructed that America mainly wants one other Bretton Woods-style assembly to reform the worldwide financial system, which would come with doubtlessly serving to america to devalue the greenback or getting the world to compensate america for the particular position the greenback performs in it. He has dubbed this potential summit the “The Mar-A-Lago Accord.”
Some observers, including Stanford historian Jennifer Burns, consider this concept is definitely a main motivation for Trump’s aggressive tariff coverage. That the White Home needs to strengthen their palms in negotiations for a grand discount that serves America’s economic system.
Is the particular world position for the greenback a privilege or burden?
The reserve forex standing of the greenback affords many advantages to america. One large one is it provides america a monetary weapon to sanction different international locations, by, for instance, reducing their banks off to the move of {dollars} or seizing U.S. monetary belongings, like the U.S. did to Russia after it invaded Ukraine. As a result of the greenback is the worldwide reserve forex, it is the lifeblood of commerce world wide — even commerce that does not contain america. Management over the greenback provides the U.S. authorities a superpower over the worldwide financial system.
One other large advantage of this particular position for the greenback is decrease rates of interest on U.S. debt. Folks world wide have actually wished {dollars} and dollar-backed belongings like U.S. Treasury bonds, which is how the federal government points debt. After we purchase stuff from overseas, these international locations get {dollars}, and they should do one thing with them. Lots of the time they purchase U.S. debt. This mighty world demand for U.S. debt lowers rates of interest on it. It is like america has a particular, low-interest bank card and might spend like loopy and never face the identical monetary penalties as different nations. Economists have known as this and different advantages the U.S. will get from this method “the exorbitant privilege.”
However in his speech this week, Miran painted the greenback’s reserve forex standing as a form of exorbitant burden. “Whereas it’s true that demand for {dollars} has saved our borrowing charges low, it has additionally saved forex markets distorted,” Miran mentioned. Particularly, with a lot world demand for U.S. {dollars}, the worth of the greenback is larger than it will in any other case be. That is nice if you happen to’re an American client as a result of overseas imports are comparatively cheaper with a stronger greenback, however that is much less nice if you happen to’re an American exporter. A stronger greenback signifies that American exports are costlier to foreigners.
There’s one other kind of bizarre quirk about having the greenback as the worldwide reserve forex. In what’s referred to as “the flight to security,” throughout instances of financial stress, there’s been a bent for world buyers to flee dangerous belongings like shares and purchase “safer” U.S. Treasury bonds. Economists debate whether or not that is or unhealthy factor, but it surely signifies that the greenback tends to strengthen much more throughout recessions. That is not nice for American exporters, together with producers, throughout laborious financial instances. (Importantly — and this apparently really scared the White House — throughout this week’s financial turmoil there was no flight to safety. In reality, there was a flight away from U.S. monetary belongings. Rates of interest on U.S. debt spiked — and other people started worrying a few potential monetary disaster).
Miran mentioned in his latest speech, the “reserve operate of the greenback has brought on persistent forex distortions and contributed, together with different international locations’ unfair boundaries to commerce, to unsustainable commerce deficits. These commerce deficits have decimated our manufacturing sector and lots of working-class households and their communities, to facilitate non-Individuals buying and selling with one another.”
As we’ve covered before in the Planet Money newsletter, Vice President JD Vance has additionally questioned whether or not the reserve forex standing of the greenback is a privilege or a burden. Final 12 months, when he was a Senator, JD Vance highlighted that the reserve forex standing strengthens the worth of the greenback. That could be good for American customers, who get advantages like cheaper overseas items and worldwide journey. “But it surely does come at a value to American producers,” Vance mentioned. “I feel in some methods you possibly can argue that the reserve forex standing is an enormous subsidy to American customers however an enormous tax on American producers.” This, he instructed, contributes to “our mass consumption of largely ineffective imports, on the one hand, and our hollowed-out industrial base alternatively.”
We spoke with UC Berkeley economist Barry Eichengreen, a number one scholar of worldwide finance and the writer of books like Exorbitant Privilege: The Rise and Fall of the Greenback and the Way forward for the Worldwide Financial System. And we requested him for his perspective on Miran and Vance’s arguments in regards to the prices of the greenback’s particular position on the planet.
“There’s a technical financial time period for these arguments: Nonsense,” Eichengreen says.
Sure, Eichengreen says, the greenback is barely stronger due to its central position it performs in worldwide commerce. “ However that is like issue quantity 17 on the listing of determinants of U.S. export competitiveness.” There are simply so many extra necessary elements figuring out whether or not American manufacturing is aggressive, just like the productiveness and wages of U.S. employees, the innovativeness of companies, the inflation price, the standard of our machines and gear, and on and on. The upper worth of the greenback attributable to excessive worldwide demand to carry it within the current system “is simply approach down there within the elements hollowing out — or not hollowing out — our manufacturing sector.”
Eichengreen says that the particular position for the greenback on the worldwide stage is “a major profit for America.” Positive, he says, economists debate in regards to the dimension of this profit. “ However I feel there’s a broad-based consensus that America is best off having the greenback enjoying this distinctive position.”
To be clear, President Trump himself has mentioned that the greenback’s reserve standing is actually necessary. A month earlier than successful reelection, Trump mentioned in an interview that if the greenback stopped being the reserve forex, America would go to “third-world standing.” He continued, “We can’t lose it.” If any nation tried to desert it, he mentioned he’d inform them, “You are going to pay a 100% tariff on all the things you promote into america” and pressure them to desert these plans.
After taking workplace, Trump threatened a bunch of nations referred to as the “BRICS” group — together with Brazil, Russia, India, Iran, China, and South Africa (therefore, the acronym) — which has been working to develop an alternate reserve forex to the greenback.
“We’re going to require a dedication from these seemingly hostile international locations that they are going to neither create a brand new BRICS forex, nor again every other forex to exchange the mighty U.S. greenback or, they are going to face 100% Tariffs,” President Trump mentioned on Fact Social in late January. “There isn’t any probability that BRICS will exchange the U.S. greenback in worldwide commerce, or wherever else, and any nation that tries ought to say hey to tariffs, and goodbye to America!” he added.
However, as Miran and Vance have highlighted, having the greenback as a global reserve forex additionally comes with tradeoffs, together with doubtlessly a stronger greenback. And Miran and different Trump officers are making an enormous deal out of the downsides of that tradeoff. How can they’ve their cake and eat it too?
“The Mar-A-Lago Accord”
Miran has offered a possible roadmap to take care of the greenback as a global reserve forex whereas making an attempt to scale back the prices to America for it. And a few observers, together with Jennifer Burns, consider this plan may assist clarify why Trump has been so aggressive in elevating tariffs on international locations world wide.
A few month earlier than President Trump chosen Miran to guide his Council of Financial Advisors, Miran printed a long essay outlining a sequence of potential reforms.
Certainly one of his large concepts was what he known as a “Mar-A-Lago Accord.” The fundamental concept is to get a bunch of representatives collectively — like america did in Bretton Woods again in 1944 — and rewrite the phrases of the worldwide financial system. With this assembly, america might get concessions, like serving to america to devalue the greenback to enhance manufacturing competitiveness and lowering America’s debt burden.
In his speech this week, Miran argued that america is mainly underwriting the worldwide economic system with their use of the greenback and likewise world safety with safety from its navy. He mentioned it is time for the world to share in paying for what he views as a big burden.
Miran provided varied concepts for international locations to pay america for these world “public items” it gives. They’ll, for example, “settle for tariffs on their exports to america with out retaliation.” They might purchase extra from America or put money into factories right here. They might even “merely write checks to [the U.S.] Treasury that assist us finance world public items.”
It’s unclear that that is all of the precise technique behind Trump’s sprawling tariffs. Some consider there isn’t any coherent technique in any respect. The Trump administration has been throwing the kitchen sink of their arguments justifying their commerce actions and totally different advisors have been saying various things. The rollout of the tariffs has been erratic. U.S. monetary markets — together with the marketplace for U.S. authorities bonds — have been freaking out about all of this.
“ I hope that the occasions of the previous few days have reminded everyone within the administration that monetary markets have a low tolerance for these form of concepts extra broadly and for erratic modifications in coverage,” Eichengreen says.
Regardless of this turmoil and antagonistic world diplomacy, there is a stickiness to the U.S. greenback because the worldwide reserve forex. Students — together with Eichengreen — have been warning that the greenback’s particular standing is at risk for many years. However the world retains utilizing it. There are great advantages to utilizing the greenback as a result of everybody else is utilizing {dollars}. And there is not a ready-to-go various.
Plus, Eichengreen says, the U.S. has — till now — been ” steward” of the greenback and the position it performs within the worldwide financial system. The world has had religion in American establishments. It is a large cause for the “flight to security.” However that did not occur throughout this week’s self-imposed monetary turmoil. There was an epic inventory market downturn, and buyers did not flock to Treasuries and different U.S. monetary belongings.
Eichengreen says that rates of interest on the bond market have moved for all kinds of potential causes, together with the potential of upper inflation due to the tariffs. He is cautious about studying short-term worth actions as telling us one thing large about the way forward for the greenback. However, he says, he’s positively extra anxious lately.
“I am very rather more involved rapidly than I’ve been up to now,” Eichengreen says. “We’ve got not seen in our lifetimes an effort to explode the worldwide financial order as we all know it. So now we’re in a world the place something that we used to take without any consideration — and that definitely consists of the worldwide position of the greenback — is out of the blue doubtful.”
