Despite issuing a 90-day tariff reprieve, President Trump has effectively dynamited the foundations of the global free-trade regime. The dust hasn’t even begun to settle, but the critiques of Trump’s “Liberation Day” gambit mostly come down to: he’s stupid, and this policy is crazy. That may be true, and Trump’s trade war might end in catastrophe. Still, his frontal attack on the existing order isn’t without a theory. Nor is it a solution in search of a problem.
Deindustrialisation has had devastating social consequences in the United States, as anyone who has spent time in the Rust Belt can attest. And the decline continues. According to the Federal Reserve Bank of St. Louis, manufacturing’s share of gross domestic product has declined by 26% just since 2013. At the sector’s postwar peak, manufacturing took up a third of GDP.
Some intellectuals in the Trump orbit have developed a rather elaborate critique of the situation. They might not have a functional plan, but they do have a theory. That theory has come closest to being spelled out in a November 2024 paper by Stephen Miran, the Harvard-trained economist who now serves as the chairman of Trump’s Council of Economic Advisers. Titled “A User’s Guide to Restructuring the Global Trading System”, Miran’s 41-page paper is making the rounds and creating quite a buzz.
It’s a dry, technical slog. But — love or hate the trade war — Miran’s ideas are worth understanding.
He argues that America’s economic crises stem from the fact that the dollar serves as the world’s “reserve currency”. The dollar, more than any other currency, is held in large amounts by governments, central banks, and major financial institutions across the planet, because it serves as the most trusted medium for international trade and is seen to be “as good as gold”.
As the world’s reserve currency, the dollar is used to price commodities like oil or gold, to settle cross-border transactions, and to provide a safe haven during economic turbulence. Because everyone wants dollars, US government debt and Treasury bonds are in constant demand. This gives the US government and American businesses tremendous power and advantage. In a crisis, Americans can more or less print “gold” and spend their way out. Many struggling economies would like to have such “problems”.
But in Miran’s view, several serious interconnected problems flow from the dollar’s global dominance. The dollar is overvalued relative to other currencies because as a reserve currency, it is in constant demand. This undermines domestic manufacturing, by making American exports more expensive. Over the long run, the high expense of the dollar is bound to bring about deindustrialisation.
While Miran is correct about the overvalued dollar’s role, he neglects deindustrialisation’s other causes, not least neoliberal deregulation that has allowed firms to do things with cheaper and cheaper labour, rather than develop labour-saving technologies, and the excessive financialisation that characterises this order. Nor does he address the fact that other countries that don’t issue the world reserve currency have also suffered deindustrialisation.
In the event, Miran contends, deindustrialisation leads to declining productivity and slower economic growth. We now know that when production takes place on one side of the Pacific while engineers and designers labour are on the opposite side, innovation and productivity flag — and, with them, growth. Thus, even as the US economy grows, it grows slower than, and diminishes relative to, those of its emerging rivals, most notably China. Along the way, both the private and public sectors become ever more indebted.
Deindustrialisation, moreover, ultimately undermines the reserve currency issuer’s military prowess — that is, the very foundation upon which America’s reserve-currency status rests in the first place. A deindustrialised economy has a hard time producing and maintaining a modern military.
Miran is correct to flag America’s hollowed-out military, a crisis that is already coming into view. We have seen it in America’s absurdly diminished TNT supply chain. To fuel its war in Ukraine, the Biden administration had to create a crash programme to build TNT factories to supply the war, because the old supply chain had been taken over by Wall Street mergers-and-acquisition wizards and profitably offshored to Russia and China. Oops.
Finally, all of this leads to a sovereign-debt crisis for the reserve-currency-issuing country.
In painting this rather bleak panorama, Miran is describing what’s known as the Triffin Dilemma, named for the work of the late Belgian-American economist Robert Triffin, who first identified the inherent dangers that come with issuing the world reserve currency. Triffin, who died in 1990, taught at Yale and worked for the International Monetary Fund. He influenced both Nixon’s decision to go off the gold standard and the IMF’s creation of a supra-national currency called Special Drawing Rights, or SDR. Miran’s use of Triffin is sophisticated and well-reasoned.
However, Miran’s paper has a number of flaws, one of the biggest being that it discusses the real economy very little. The majority of the paper is a detailed discussion of the “incidence” of potential tariffs, meaning a highly technical discussion of who will actually pay the price of the tariff, the exporter or the American importer and consumer. Miran’s conclusion is that a tariff offensive, such as the one Trump has just unleashed, could be “disinflationary”, meaning that there will be inflation, but at a slower rate of inflation that prevailed before the tariffs. Which is fine, so far as it goes, but doesn’t reckon with the pain of tariffs at the individual and firm level.
Another weakness is that while Miran sees the dollar’s reserve-currency status as the root of America’s economic problems, he doesn’t want to dispose of that position. Rather, he just wants to moderate it. This is partly because, as he admits, there is no apparent alternative to the dollar, which, in turn, owes to the lack of any alternative to the size and depth of US financial markets.
Miran discusses briefly the possibility of a multilateral approach to lightening the burden of being the issuer of the world’s primary reserve currency. One could imagine international negotiations that, in the spirit of Triffin, would attempt to massively expand the role of the IMF’s alternative currency, the SDR. But ultimately Miran comes down on the side of unilateral action of the kind that his now-boss has taken.
A more fundamental flaw is that there is no discussion of industrial policy at all in Miran’s paper, which is really too bad. One could, for the sake of argument, grant all of his points. One could allow that tariffs will work, that they will be disinflationary rather than lead to stagflation, that they will summon a huge wave of inward-bound investment. One could grant all that and still argue that the whole endeavour will fail for lack of an industrial policy.
The idea of reviving US manufacturing by financial manipulation is deeply flawed. No country has industrialised without having an industrial policy, including the United States. Alexander Hamilton’s “Report on the Subject of Manufactures” was, in fact, the first modern blueprint for such a programme. It was the playbook the early republic followed throughout the first Industrial Revolution.
“No country has industrialised without having an industrial policy.”
True, tariffs can have some salutary effects. The impending threat of tariffs has already led to some high-profile promises. Apple promises to invest $500 billion in domestic manufacturing. The Taiwan Semiconductor Manufacturing Company has likewise pledged to invest $100 billion in the United States to build state-of-the-art chip plants. But foreign investment alone isn’t sufficient to revive American manufacturing.
TSMC, for example, is now printing chip-circuitry that is almost as small as an atom of silicon. The clean rooms in which such work is done must be entirely dust free, totally sterile. The laundry service for the uniforms the technicians wear is itself a high-tech service that the United States is currently incapable of providing.
Think about that: Americans don’t have the capacity to do TSMC’s laundry, yet we expect the firm to successfully invest $100 billion to create advanced manufacturing facilities. We need a plan to either recruit specialised laundry firms from Taiwan, or somehow train and help fund American firms to do the same. Similarly, Apple had a laptop factory in Texas that had to close because the firm could not find a flexible and dynamic enough suppler to build its highly specialised screws. These sorts of problems replicate across the manufacturing landscape.
But the Trump administration shows no sign of coming up with an industrial strategy or promoting workforce development.
Take trade schools and workforce preparation. The inability to hire qualified and disciplined workers is the No. 1 complaint of manufacturing employers whenever they are surveyed. Is Team Trump throwing money at that problem? No. Quite the opposite. The Trump administration has recently closed numerous trade-school-type apprenticeship programs because they were DEI-connected, often run by Left-leaning nonprofits that worked closely with trade unions. When Trump eliminated all DEI grants, many of these workforce training programmes lost funding, and the slack hasn’t been picked up by some other expansion of trade schools.
In short, Trump insiders like Navarro and Miran can’t bring themselves to even admit the state intervention in the economy that their own theory requires. They are still in thrall to neoliberalism’s markets-über–alles mythology, even as they attempt to overthrow the neoliberal order.
Step One in creating an industrial policy is having a more grounded and concrete discussion of American manufacturing as it actually exists. So here’s a sketch of what we have. The vast majority of US manufacturing firms are small and medium-sized enterprises that are privately owned, as in not traded on the stock market. According to the US Census, there were 238,851 manufacturing firms in the United States in 2021. More recently, the National Association of Manufacturers estimates that there were about 300,000 US manufacturing companies.
These firms are usually individually or family-owned, or they are closely held by small groups of investors, or a few partnerships. The vast majority of these small manufacturing firms produce fabricated metal products, furniture, and apparel. They tend to operate in local markets and focus on products where customisation is key.
Some of these smaller firms are involved in precision manufacturing with links to the military industrial complex and will be essential in any high-tech revival. These are the types of companies that can make screws to Apple’s specifications. But without public support and planning, they won’t have the flexibility to scale quickly and pivot quickly as their customers’ designs change in response to shifting market preferences.
This landscape of actually existing American manufacturing is almost totally neglected by the discipline of economics and our policy elite. If there is to be a revival of American manufacturing, we need to get to know manufacturing. There also needs to be an intellectual and cultural revival in our thinking about manufacturing. Recently, a Chinese propaganda video, animated using AI, showed bored, overweight Americans toiling at sewing machines by way of suggesting that America isn’t for manufacturing any longer. Many social-media personalities, even self-proclaimed progressives, enthusiastically shared it — a grim indicator of how far America’s elites are from being able to even imagine the nation as a future manufacturing powerhouse.
For all the convulsions it has caused, Trump’s tariff rampage can’t be described as a death blow to neoliberal globalisation. As Miran’s paper indicates, the theory behind it, while half-correct, is still marked by all the flaws of the neoliberal imagination: an imagination that can think only in terms of prices and financial flows, and never in terms of concrete places, industrial processes, and real products.
