The newly confirmed chairman of the Trump Council of Economic Advisors, Stephen Miran, has proposed a plan to offset the higher cost of tariffs on foreign goods by implementing a cheaper exchange rate. However, other economists warn that this approach may not work in practice and could lead to a trade war.
Miran’s vision relies on the idea that when imports from China become more expensive due to tariffs, the value of the yuan compared to the dollar will decline, making the tax increase paid by US importers offset by a cheaper exchange rate. However, Miran acknowledges that this assumption can be faulty and may lead to retaliatory measures from countries targeted by Trump’s tariffs.
The plan has faced criticism from mainstream economists, who argue that American consumers will ultimately bear the burden of higher prices. Respected names on Wall Street, including Treasury Secretary Scott Bessent, disagree with this view, citing the potential benefits of tax cuts and deregulation in offsetting inflationary pressures.
Despite these concerns, markets have been volatile amid Trump’s threats and the growing fears of a trade war and recession. Miran’s memo, “A User’s Guide to Restructuring the Global Trading System,” outlines his proposal, which has been met with skepticism by many experts.
Some academics argue that Miran’s plan relies on a flawed assumption that countries will not retaliate against US tariffs. Daniel C.K. Chow and Ian M. Sheldon found that the first batch of Trump tariffs on China cost American consumers $51 billion in increased prices, resulting in a net loss of $7.2 billion for the US economy.
Experts warn that if the dollar does not offset tax hikes on foreign goods, Americans will suffer higher prices and bear the cost of tariffs. Market commentator Luke Gromen notes that the recent decline of the US dollar may be due to Trump’s efforts to scare capital out of US markets, which could lead to increased inflation from tariffs.
The challenge Miran identified as essential for successfully implementing tariffs is preventing retaliation. However, many experts believe that this approach is unlikely to succeed, and a trade war would likely have negative consequences for the US economy.
Source: https://fortune.com/2025/03/13/trump-economist-blueprint-tariffs-inflation