Bernard Snoy and Christian Ghymers
Trumpeconomics and the Triffin Dilemma
Robert Triffin International , March 2025
Abstract
In December 2024, Donald Trump, then President-elect, announced Stephen Miran’s nomination to chair his Council of Economic Advisers. In November, Stephen Miran, then Senior Strategist at Hudson Bay Capital, wrote a piece entitled “A User’s Guide to Restructuring the Global Trading System”, discussing some of the policies the incoming Trump administration might adopt. This piece has no formal status with the new administration so far. Nevertheless, it outlines what the Trump administration identifies as the problem that needs to be addressed and how the various instruments at the disposal of the US government can be deployed to address it.
Miran’s “User’s Guide” can be seen as a roadmap to restructuring the global trade system with the objective to “Make America Great Again” (MAGA). The key objective is to achieve a significant devaluation of the dollar (or a significant appreciation of the other currencies, particularly those of countries running a current account surplus with the United States) while maintaining the hegemony of the dollar as a global currency. “A User’s Guide” starts from an explicit recognition of the Triffin Dilemma: the public good nature of the dollar used freely by the rest of the world as the global reserve currency entails a significant cost for the US economy. The roots of economic discontent in America lie in the resulting dollar’s overvaluation. Miran’s menu of policy proposals aims at shifting this cost to the rest of the world A full battery of measures is presented as fair and justified, obliging the rest of the world to pay for benefitting from this beneficial monetary externality: optimal protection with US higher tariffs, penalties hitting the dollar reserves holders while nevertheless forcing their use in order to strengthen the US geopolitical power stemming from the dollar extraterritoriality. Sharper increases in tariffs or withdrawal of the security umbrella provided by the US army to its allies would be used as levers to impede any retaliation or rejection, also leveraging the public good nature of US military protection.
This note analyses what can be seen as an economic war program based on a generalised blackmail method aimed at imposing on foreign countries measures impacting them unfavourably. Our main criticisms are the ignorance of key global interdependencies and the undermining of the whole multilateral order that had been established by the US itself at the end of World War II, which ensured US prosperity and the global extension of its influence. The underlying philosophy is that the MAGA program would be a zero-sum game, where the US gains are supposed to be equivalent to all the losses imposed on economic partners, whatever the used means. The Trump administration ignores the global costs of the loss-loss game this program would trigger and the resulting waves of hostility against what would be perceived as a US unilateral aggression. Especially damaging would be measures that undermine openness, competition, cooperation, inclusion, and fair rules, thereby preventing rent-seeking. Although the Triffin Dilemma implies genuine costs for the US, it also provides significant financial returns to the US. Furthermore, the US costs are wrongly presented as a free benefit for other countries, ignoring that the dollar system is a loss-loss game, generating high costs in the form of global liquidity instability as developed by RTI. The tariffs are wrongly presented as the perfect fiscal tool, ignoring significant potential effects on the US economy, particularly in terms of higher inflation and reduced incentives for innovation and productivity, as well as the resulting dollar's real appreciation, which would further increase the trade deficit.
Furthermore, the coercive methods proposed to achieve depreciation of the dollar by penalising foreign dollar holders directly contradicts the objective of maintaining or even strengthening the dollar’s extraterritoriality power. Additionally, preparing and imposing a dollar depreciation would directly harm the dollar reserve function and could unleash quickly the devastating power of financial expectation. All the more, the costs of monetary tightening are not rigorously considered, while the suggestion that the Fed’s independence be reduced would imply even more significant costs for the US and the world. In addition, spurring drilling for the extraction of fossil fuels as a means to fight inflation, without considering the negative externalities causing very irreversible damage to the Planet, constitutes a free-riding behaviour, inflicting dramatic future costs on the rest of the world.
Facing such a dangerous plan, the most rational response for the European Union would be to highlight its incoherence and join forces with other affected countries to prepare a joint response, including the threat of protectionist retaliation. Refusing the self-defeating path of appeasement, we should jointly prepare for the likely outbreak of a severe financial crisis that could be triggered by the ballooning fiscal and external deficit generated by President Trump’s massive tax reduction and spending plans and the loss of confidence in the dollar. Such a crisis, primarily through its advanced effect on domestic housing mortgage rates, stock exchanges and the globalized financial markets, might destroy domestic political support for the President, forcing him to bargain for a return to essential multilateral rules in the US self-interest. A coordinated but quick reaction would be less costly in the medium and long term than procrastinating. Acquiescing to blackmail, would only postpone an ever more severe financial crash which could have irreversible effects, involving broader institutional destructions and threats to peace, democracy and the environment.
The genuine problems created for the US by the dollar's global role should be acknowledged. Through global cooperation, they could have an alternative win-win solution. RTI should continue to advocate for a systemic response to the Triffin Dilemma along the lines of Triffin’s ideas and the recommendations of the Palais Royal Initiative of 2010-11, financed by RTI, led by Michel Camdessus, Alexandre Lamfalussy and Tommaso Padoa Schioppa and endorsed by Paul Volcker. It would entail a stage-by-stage evolution towards a reinforced International Monetary Fund, endowed with more authority and legitimacy, with the role of Lender of Last Resort (LOLR) and a stronger mandate concerning capital flows, exchange rates and multilateral surveillance, capable of catalysing if needed desirable changes in exchange rates. With regular SDR allocations delinked from the quota, the SDR would progressively replace the dollar as the dominant instrument for holding reserves, removing the burden as well as the present exorbitant privilege resulting from the use of the dollar as a global currency. If this solution could not be achieved in the face of the current geopolitical tensions, an interim solution could be found through regional monetary arrangements, particularly if such arrangements utilize SDRs for the pooling of reserves and in the design of mutual support instruments.
