Trump's tariff "strategy" according to a "research" paper by his top advisor Stephen Miran

Prof. Frank Dehne

Below is a link to a "research" paper by Stephen Miran, Chairman of the Council of Economic Advisers for Trump. It was published (without peer review) after Trump was elected but before his inauguration. The paper outlines the "strategy" that Trump and his supporters are following for their tariffs. The paper is full of contradictions and wishful thinking. They are also overestimating their ability to bully other countries into doing what the US wants.

For example, a bond market selloff is one of the bad potential side effects discussed in the paper. It then says that they need collaboration from "friendly" countries because a requirement for their "strategy" to work is that foreigners keep buying long term US Treasury bonds despite devaluations of the US dollar caused by their tariffs. But US dollar devaluations eat up the interest people get when buying US Treasury bonds, which makes them a hard sell and bond interest rates go up. Thus, the US government will have to pay higher interest to service their enormous government debt held by foreigners, which creates a major budget crisis for the US government. 

The paper suggests to coerce European central banks to buy long term US Treasury bonds by making it a NATO requirement. That's obviously not working. Because of the doubts in his NATO support that Trump created, a credible US nuclear defence umbrella no longer exists. The Europeans have already decided to become independent for their own defence. For example, Germany is currently discussing with France to expand their nuclear arms to a joint nuclear defence including Germany. Poland is planning to build their own nuclear defence. 

The paper also states that most of the US Treasury bonds are held in China and India anyway. It just doesn't add up. 

Trump started the recent 90 day tariff moratorium the day after the US Bond market saw a spike in rates. That scared them but it's probably too late because long term US Treasury bonds are all about trust in the bond issuer (the US government) by foreign buyers. After the 90 day moratorium started, the stock market recovered somewhat but the bond market stayed elevated. These are 10 year bonds, so the US government will have to pay higher interest on that debt for a decade. 

The paper indirectly suggests what China can do to win a trade war with the US: Sell some of the 2 Trillion dollar US bonds they are holding to plunge the US government into a devastating fiscal crisis. Given the recent and likely future US dollar devaluations, anybody holding such bonds will want to sell them anyway. The paper even suggests that if there is "too much movement out of dollar reserve assets", the US could introduce a "usage fee" on foreign bond holders. Needless to say, that would destroy any remaining trust in US Treasury bonds.

This "strategy" is a recipe for disaster. With all these Trillions of dollars of US debt held by foreigners, and the ongoing erosion of trust in the US government, the US is heading for a fiscal catastrophe.

Furthermore, Trump added to these problems by ignoring some of his top adviser's advice. The paper discusses in detail the need to introduce tariffs gradually and transparently to allow US businesses to adjust. As we all know, Trump did exactly the opposite, creating a stock market crash and a general stop on investments due to insecurity. 

The US economy is going down! It's a perfect storm created by their own policy.

Canada needs an economic and financial firewall so they don't drag us down with them! 

We also need a new defence policy because dictators in political trouble at home have a history of creating wars as a distraction. We do not want to be their 51st state!