Basic Text on Understanding

Firm <Basic Text on Understanding Trump's Second-Term Economic Policy>

White House economic adviser Stephen Miran wrote in November last year before he was appointed to the position. The tariff policy that the Trump administration is taking after taking power is faithfully progressing according to the report's thesis. This data is the basic textbook for understanding Trump's second economic policy.

The contents are vast but written in very clean English, so I recommend those who want to understand the global economy and financial markets after Trump to read them carefully.

The main arguments in the report are as follows:

- Reserve assets (basic currency) and shortages are the fundamental contradictions of the international monetary system in the 21st century (Tripin dilemma). Demand for reserve assets is concentrated in the dollar, and the dollar is strengthening, and the side effects are stifling the U.S. economy. The U.S. manufacturing industry can revive only when it reduces the ever-growing fiscal deficit and achieves a weak dollar at the same time.

- Tariff imposition is the first step on the journey. Although tariffs are primarily for negotiation, they also have a significant impact on fiscal revenue. Contrary to popular belief, tariffs do not have much impact on prices. Tariff policies are important in themselves and should not be easily collected.

- When tariff negotiations are completed, the second phase of work to induce the dollar to weaken will begin in earnest. The goal is to conclude the "21st Century Mar-a-Lago Agreement", a title like the Plaza Agreement. Although the situation is not as easy as it was in 1985, we will do everything possible. For countries that have to sell their foreign exchange reserves in large quantities to cooperate with the weak dollar, the U.S. provides currency swaps under generous conditions.

- As the U.S. is responsible for security and provides reserve assets, countries that benefit under the umbrella are obligated to purchase U.S. government bonds. For mandatory purchase, government bonds with less short-term repayment burden, such as 100-year government bonds, are desirable. For less friendly countries, a significant amount of government bond interest is deducted from the concept of usage fees. In a new situation where the burden of U.S. financial position is severe due to the burden of supply of reserve assets, enemies and friends should be clearly separated and treated differently economically (a country that relies on security for its trade surplus with the U.S., such as Korea, is unlikely to stop at demanding an increase in its defense cost share).

- Tariff policies, the introduction of new agreements to weaken the dollar, and payment plans for partial deductions of US government bonds can have a significant impact on the financial market. Efforts will be needed to minimize the market shock, but the current situation, in which only the horse country suffers losses even if an unexperienced signaling shock comes, must be corrected. Concerns about market instability cannot prevent the new government from bold policy initiatives and attempts.

Among the policies proposed by this report, except for tariffs, the actual success rate is not very high. As such, tariff imposition is basic and once introduced, it is highly likely to last long. On the other hand, we should not let our guard down that the Trump administration will not do anything just because the new dollar agreement or the government's idea of forced acquisition of government bonds is unlikely to be realized in the short term. This time, it is highly likely that the government will make a determined and shaken attempt. In this document, the expression of a generational change that occurs once in a generation often appears. During Trump's second period, the market may shake significantly with a level and shape that has not been experienced so far several times.

There was a time when the economy alleviated geopolitical conflicts. This was the case in the 1990s and early 2000s in the era of world society. Conversely, it is an era in which confrontations of economic interests amplify geopolitical conflicts. You need to know the economy to understand international politics properly.

In the end, a grand compromise between the U.S. and China is needed. China is left with an incomplete responsibility for aggravating the fundamental contradiction of the international monetary system, which is over- and insufficient reserve assets, due to its slow opening of the financial market compared to the growth of the real economy. Therefore, the U.S. should understand the difficulties of the U.S., which is suffering from a strong dollar and weakened competitiveness of its manufacturing sector due to the concentration of preference for reserve assets, and seriously discuss ways to ease such difficulties.

There was a time when the key currency was an object of blessing and envy. Even now, the key currency has many advantages. However, concerns are growing that the side effects of increasing demand for reserve assets and losing the competitiveness of the domestic manufacturing industry offset the advantages of the key currency. Saving the domestic manufacturing industry is now essential not only for jobs but also for national security.

The 21st century is an era of great prosperity in emerging economies. China has taken the lead, and India's recent rise is remarkable. However, these emerging economies have not risen to the rank of reserve asset countries. As a result, traditional advanced countries, which do not have the same economic power as before, are still responsible for the supply of reserve assets (dollar, euro, yen). The great leap of emerging economies and the decline of advanced economies have created a huge imbalance between the real economic power and the supply of reserve assets, which is gradually increasing contradictions and tensions in the international monetary system.

However, this is not to say that China and India are avoiding their position as reserve asset countries because they do not want to. It is premature to become a reserve asset country because their economy cannot afford to open the capital market, which is an essential requirement for reserve assets.

Under these circumstances, the possibility of a grand compromise such as the Mar-a-Lago Agreement, which resolves the problem of over-extended reserve assets at once, is slim. Memories of the success of the Plaza Agreement are strong, but it is difficult to say that the U.S. now has the power and ability to attract all unflattering opponents, such as China, Russia, India, and the Middle East, to a major dollar-weak compromise by mobilizing carrots and sticks.

In the end, since the US imposed tariffs throughout Trump's second term, it is expected that the other country will respond with a weak domestic currency, and the US will again use all exchange rate policy tools to pressure and fight the surplus countries to induce a weak dollar. Since most of the nari appearing on this stage have their own noses in stone, it is expected that each person will have a hard time.

On the other hand, attempts to find new alternatives are expected to gain momentum as the contradiction of the dollar one-party system intensifies due to the lack of reserve assets and bias.

First of all, attempts to settle international trade without dollars, such as the BRICS monetary union, will steadily expand the scope of participation. Although Trump has threatened not to sit idly by such attempts to weaken the dollar's standing, in fact, this slightly reduces the burden of U.S. reserve assets to the U.S