Prices and economics | In Donald Trump’s head

Why are customs tariffs good for the United States? Why will they not lead to inflation? Why depends on US national security?

The answers to these surprising questions are meticulously justified in a 41 -page analysis circulating in financial circles. Canadian decision-makers would have every interest in learning about it, because the text explains how the new American administration could revolutionize the relations of the United States with the rest of the planet^⁠1.

This analysis called A User’s Guide to Restructuring the Global Trading System was produced in November 2024, in the days following the election of Donald Trump.

Although it was written on behalf of the firm Hudson Bay Capital, it is of particular importance because its author, Stephen Miran, was appointed to direct the Council of economic advisers of the White House, at the end of December. In short, Miran is the chief economic advisor of Trump^⁠2.

40 years of trade deficit

First, the factual observation: the balance of exchanges of the United States with the rest of the world has been in deficit for 40 years. This deficit around 1050 billion US dollars in 2024, a summit.

At the same time, the number of manufacturing jobs has dropped in the United States for 20 years at the rate of 200,000 per year. The share of manufacturing jobs in the United States is only 8 %, against some 25 % in 1970, according to the author. China is the main explanation (as in Canada and in most other Western countries, by the way).

For Trump’s advisor, the main cause is not the loss of reliability of American products – I think of American cars -, but the overvaluation of the US dollar. This overvaluation is explained by the role of monetary reserve of the dollar in the central banks of the world, as of current currency, according to the author.

Normally, when a country increases its imports more than its exports, its currency loses value, being less requested. This was not the case in the United States, notes the author, due to the reserve role of the greenback.

However, this dollar force, which undermines the manufacturing sector by increasing the prices of exporters, deprives the United States of military capacity, writes Stephen Miran.

“If you do not have supply chains to produce weapons and defense systems, you do not have national security. As President Trump said: “If you don’t have steel, you don’t have a country.” »»

This explains why the Trump government invokes national security to justify its prices, as read it 20 times in the recent decree on the trade signed by the president (America First Trade Policy).

Such prices, which could be 25 % in Canada and Mexico and 10 % elsewhere, are they inflationary?

Not really, according to the economist, since these prices have the effect of retreating the currency of the countries which export to the United States (as we can see in Canada with the simple threat), which makes the same products almost as inexpensive as before their entry into force^⁠3.

According to Miran, the fruit of prices will finance the maintenance of corporate tax cuts in the United States in 2026. Some people estimate the Trump administration at 1000 billion.^⁠4.

The prices could also have other ends, according to the author. They could serve as an argument to attract investments in the United States, even in the case of Chinese car manufacturers.

This logic, Donald Trump made it the heart of his speech to Davos on Thursday: “Come and make in the United States, otherwise you will pay customs duties,” he said in the audience.

Finance NATO or pay the prices

Another possibility proposed by Stephen Miran: that the height of the prices varies according to the countries according to their respect for American interests.

Do these countries pay their just part in NATO? Do they open their own market as much as the United States does for its products?

Do they help China bypassing American prices by buying its products which are later re-exported to the United States without the Chinese mention?

Do they make gestures having the effect of devaluing their currency against the US dollar by accumulating an excess of these US dollars in their reserve?

To countries that would like to impose reprisal measures, the author suggests that the Trump administration explicitly links security and commercial policy. “America provides a global defense shield to liberal democracies […] The Trump administration could consider making the American defense umbrella less reliable for countries that implement retaliatory prices, “he wrote.

Force a devaluation of the US dollar

Finally, the author makes the bold proposal to force a devaluation of the American currency. This strategy would be implemented with the agreement of the countries which use it as a reserve, or would be imposed on them. He would baptize this agreement the Mar-A-Lago agreement, named after Trump’s Florida club.

This devaluation-complex and very risky, I must say-would make American products less expensive internationally, would reduce the trade deficit of the United States and create manufacturing jobs.

Countries that have major reservations would be quick to oppose it, since a devaluation of the currency would mean the fall in the value of their reserves in US dollars.

To convince them, Miran still offers the argument of customs prices, such as that of the American military defense umbrella, but also the taxation of costs for the use of the dollar as a monetary reserve. These costs would first be 1 % and would gradually increase to 2 %.

He judges that the American central bank (the Fed) should help to achieve this objective, since its mandate is not only to maintain stable inflation and high employment, but also to have moderate long -term interest rates . However, devaluation mechanics would decrease long -term American rates.

The currency plan should create inflation and a lot of volatility. In addition, the customs tariffs could cause inflation, at first, which would be absorbed later.

He therefore suggests “adopting a progressive approach, by low customs prices and reaching only the maximum rate of 10 % over time”.

In addition, he judges that such effects would be offset by disinflation engines that would be the all -out deregulation promised by Trump, tax reforms and energy abundance arising from the opening of boreholes.

A whole program, as you can see, of which some economists have criticized validity, deeming its zero effect on the trade deficit.

All the same, I notice some advantages for Canada assuming that it is applied in broad outline.

First, the target is above all China, and Canada respects the American dam towards certain Chinese products.

Second, the taxation of prices should be progressive so as not to be harmful, advises the author.

Third, Americans heavily depend on our resources for their economy.

Fourth, depriving Canada from the US defense shield would also put the United States at risk.

But hey, Miran is not Trump …

1. Read “ A User’s Guide to Restructuring the Global Trading System ” (in English)

2. Stephen Miran is not a two of spades. He obtained his doctorate from Harvard University and is a fellow of the Manhattan Institute for Policy Research, an influential conservative reflection group. He had been an economic advisor under Trump during his first mandate.

3. In addition, they impoverish partner countries with their depreciated currency.

4. This financing would have less negative economic impact than another form of tax (on income from individuals, for example), argues the author.