SUBSIM Radio Room Forums - US Politics Thread 2021-24

[FOCUS] Economists warn that Trump's tariff policy is driving up inflation and interest rates. But a paper by his future chief advisor shows that Team Trump doesn't care about economic rules – they prefer to use the tools of the mafia.

At a breathtaking pace, the 47th US president is dismantling institutions, old alliances – and the rules of global trade established over centuries. Some wonder whether there is a long-term plan behind Donald Trump's seemingly erratic decisions – raising tariffs, lowering them, then doubling them. The disturbing news is: There actually is one – and it has even been known since November 2024.

Shortly after Trump's presidential victory, Stephen Miran, senior strategist at the investment firm Hudson Bay Capital, published a 40-page dossier entitled "A User's Guide to Restructuring the Global Trading System." Miran isn't just any economist: Trump wants him to chair his advisory board on economic issues. It has since become clear: Stephen Miran formulated the script back then, which Donald Trump has been implementing almost exactly to the letter since his inauguration in January 2025.

The opening sentence already contains a sentence that has been heard several times from the US President in recent weeks: "The root of economic imbalances lies in the persistent overvaluation of the dollar, which prevents international trade from balancing." The desire to reform the global trading system and make it fairer to the rest of the world has been "a constant theme for President Trump for decades."

The paper lists various instruments for correcting these alleged imbalances. These include tariffs, inflation, exchange rates, and international foreign exchange and trade flows.

Most economists are convinced that Trump's tariffs will fuel inflation in the US – thus, at the expense of US consumers. Miran brushes aside these concerns: The critics' considerations are "too short-term" or "not thought through." Instead, the following applies: "The exchange rate change and the (tariff) tariff almost completely cancel each other out." This was already the case in 2018, when Trump imposed tariffs on China during his first presidency.

The economist rejects criticism that prices didn't rise at the time only because importers couldn't pass the higher prices on to their customers, thus losing money. He argues that it is "bizarre" to assume that in economies with sufficient competition, importers would not restore their profit margins over time "by changing their suppliers." It just takes time.

This passage fits perfectly with Trump's recent statements that Americans still need to be patient because the economy is in a "transitional phase," just like in the conflict with China.

The essay also shows that the Trump camp sees tariffs as a source of permanently higher government revenue. Donald Trump needs this so that he can implement his election promises.

But that will only work if the volume of imported goods does not decrease significantly despite tariffs. And there are two further problems: Because even the tariffs won't raise enough money to fully implement the announced tax cuts, Trump will have to take on hundreds of billions of dollars in new debt.

A strong dollar and high interest rates, however, run counter to this plan. This year, the US will have to pay a trillion dollars in interest on its national debt for the first time. Therefore, he needs another mechanism to suppress the dollar: a non-scientific one.

This attempt has already been made – in a friendly form: In 1985, then-US President Ronald Reagan persuaded the friendly countries of Great Britain, Japan, Germany, and France to jointly devalue the dollar. Reagan's goal at the time: to strengthen the US's industrial competitiveness. The meeting took place at New York's Plaza Hotel, which gave the agreement its name: the "Plaza Accord."

Trump's team met regularly at his Mar-a-Lago residence in Florida during his presidential campaign and in the period between his second election and his inauguration – and hatched a new plan. Miran calls it the "Mar-a-Lago" Accord.

In the chapter "Multilateral Monetary Approaches," starting on page 28, the author outlines a scenario that could have come from a mafia movie: I'll only protect you if you pay.

Trump's new chief advisor presents a whole cabinet of horrors of measures available to the United States and its Federal Reserve to influence the trading of US Treasury bonds, the creation of dollar reserves, and the dollar exchange rate itself. These range from fees on holding government bonds to the arbitrary reduction of promised interest payments to a ban on resale.

What Miran specifically envisions: Various countries should help depress the dollar, as they did in 1985 – and still continue to buy government bonds from the US. However, in order for the amount of dollars hoarded abroad to decrease at the same time (in order to reduce the current account deficit), these government bonds must be worth less than their predecessors. How do you do that? By forcing the current owners to exchange valuable, high-interest bonds for zero-percent bonds with a remaining term of 100 years (“century bonds”). One could also say: for almost worthless securities.

From the US perspective, this would be brilliant: The government, which has to spend a trillion dollars on interest payments this year alone, would suddenly have more leeway in its budget.

But how do you get the parties involved to participate in such an obviously unprofitable deal? Hungarian-born economist Zoltan Poszar, chief economist at Crédit Suisse until 2023, drafted the plan for Trump's team in 2024. If a country provides military protection to others, it must also be paid for by those who use it – by purchasing US government bonds. Miran is now taking up the issue: All countries outside the US must decide whether they want to be considered friends of the US, neutral bystanders, or enemies. Only the "friends" would still be protected by the US nuclear umbrella. In return, they would fulfill the US's economic and financial conditions.

So it's nothing more than protection money – and it will be for decades. And it sounds so simple – probably right up Trump's alley.

What Miran leaves out: The largest foreign holders of US Treasuries are the Chinese. The communist regime in Beijing and its banks hold around three trillion dollars. But China is unlikely to be interested in US military protection. Japan comes second with $1.2 trillion and Switzerland with $800 billion. The situation is different in the Eurozone: US Treasuries are only worth around $280 billion. As a result, Europe is – even more – dependent on US military protection. However, in all democratic countries, the bonds are held not only by central banks, but also by commercial banks, insurance companies, and other asset managers – which are completely politically independent.

But that doesn't matter to Miran.

And how do you get all these countries in line? This brings us full circle: "It's easier to imagine that, after a series of punitive tariffs, trading partners like Europe and China will become more receptive to some kind of currency agreement in exchange for a reduction in tariffs," the dossier states.

Too absurd to be true? Indeed, the Trump administration is already thinking similarly elsewhere. On Friday, the New York Times, citing government sources, reported that the administration had compiled a list of 43 countries for which entry restrictions of varying severity would apply. According to the NYT, there are three lists: a red one (entry ban), an orange one (entry only for "wealthy businesspeople"), and a yellow one.

So far, the list only includes countries such as Afghanistan, Iran, Yemen, Cuba, and North Korea (red group), or Belarus, Eritrea, Haiti, Pakistan, and Russia (orange). However, the definition of the third, yellow group, is striking. According to the NYT, these countries will be given 60 days to address concerns raised by the US government. Otherwise, they are placed on the red or orange list.

Only 43 of the world's 191 countries are currently affected. But the division into three groups probably doesn't coincidentally correspond to the aforementioned protection money proposal. And it would be easy to assign European states the yellow status if the goal was to put pressure on them.

The selection into friend and foe may have already begun.