Although the status of the dollar as a reserve currency stimulates the request for treasury vouchers, it does not necessarily increase the demand relating to all American assets.
The war of customs rights led by American president Donald Trump being now total, investors around the world are wondering: what is the next step in his upheaval program of the world economic order? Many of them therefore look at what is called “the Mar-A-Lago agreement”, a plan proposed by Stephen Miran, president of the Trump’s economic adviser committee, consisting for America to coordinate with its business partners in order to weaken the dollar.
At the heart of this plan lies the idea that the status of the dollar as a global reserve currency would not constitute a privilege, but a heavy burden, which would have played a major role in the deindustrialisation of the American economy. According to this vision, the global demand for dollars would increase the value of the greenback, thus making products manufactured in the United States more expensive than imports, with the consequences of persistent trade deficits, as well as incentive for American manufacturers to relocate their production abroad, to the detriment of employment.
Is there a share of truth in this conception? The answer is both yes and no. It is certainly plausible that foreign investors wishing to have American stocks, bonds and real estate can generate a regular flow of capital to the United States, fueling in this way domestic consumption, and stimulating the demand for exchangeable goods such as cars, as well as non-exchangeable goods such as real estate and restaurants. The increase in the demand for non -exchangeable goods has in particular tend to increase the value of the dollar, thus making imports more attractive to American consumers, as Miran suggests.
However, this logic neglects a number of crucial details. Although the status of the dollar as a reserve currency stimulates the request for treasury vouchers, it does not necessarily increase the demand relating to all American assets. Asian central banks, for example, have several thousand billions of dollars in treasury bills, which they use to stabilize their exchange rates and maintain a financial reserve in the event of a crisis. On the other hand, they generally avoid other types of American assets, such as actions and real estate, which do not serve the same political objectives.
This means that if foreign countries only need to accumulate treasury bills, they are not required to generate commercial surpluses to acquire them. The necessary funds can also be obtained by the sale of existing foreign assets such as actions, real estate and factories.
This is precisely what happened from the 1960s to the mid-1970s. At that time, the dollar had firmly imposed itself as a global reserve currency, but the United States almost systematically displayed a surplus of current balance, not a deficit. Foreign investors accumulated American treasury bills, while American companies developed abroad by acquiring foreign production facilities, either by direct purchases, or by investments on virgin sites, within which they built factories from zero.
-The post-war period was not the only period during which the country issuing the global reserve currency recorded a current balance of balance. The Sterling book was the undisputed planetary reserve currency of the end of the Napoleonic wars in the early 1800s and until the first world war started in 1914. Throughout this period, the United Kingdom has generally displayed external surpluses, thanks to the high yields of investments made in its colonial empire.
There is another way of interpreting the deficit of the current balance of the United States, which explains why the relationship between the exchange rate and commercial imbalances is more complex than Miran’s theory suggests. In accounting terms, the surplus of the current balance of a country is equal to the difference between national savings and the investment of the state as well as the private sector. It is important to specify that the term “investment” here designates physical assets such as factories, housing, infrastructure and equipment – not financial instruments.
Given from this angle, it is clear that the deficit of the current balance is influenced not only by the exchange rate, but also by all that affects the balance between national savings and investment. In 2024, the United States’s budgetary deficit amounted to 6.4% of GDP, much higher than the current balance, which was below 4% of GDP.
Although the reduction in the budget deficit does not automatically eliminate the deficit of the current balance (it all depends on how it is filled, and which the private sector reacts), it constitutes a much simpler solution than a declaration of trade war. The reduction of the budget deficit would however imply the difficult political task of convincing the Congress to adopt more responsible bills in terms of taxes and expenditure. And unlike an extremely publicized commercial confrontation, it would not encourage foreign leaders to attract the favors of Trump; On the contrary, it would pay the attention of the media to internal policy and negotiations within the congress.
Another key factor in the current balance deficit lies in the vigor of the American economy, which is by far the most dynamic among the main world players in recent years. This is what makes American companies particularly attractive for investors. The manufacturing industry has itself progressed as a percentage of GDP. If the job has not followed, it is because modern factories are highly automated.
As intelligently elaborate as it may be, the Miran plan is based on an erroneous diagnosis. Although the role of the dollar as the first global reserve currency plays a role, it is only one of the many factors that contribute to persistent trade deficits in the United States. And given this multiplicity of the causes of the trade deficit, the idea that customs duties are the miracle solution is seriously questionable.
Copyright: Project Syndicate, 2025.
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