Raghuram Rajan, a well-known analyst, challenged the Trump administration’s financial outlooks, particularly those regarding trade deficits and the US currency’s impact on other countries. He refuted the assertions of economist Stephen Miran, who claimed that excessive spending and no overseas demand for US financial assets led to America’s trade deficits.
According to Miran, who was nominated for Trump’s financial committee, the country runs fiscal deficits, maintains the dollar’s strength, and depresses American exporters.
Rajan, but, disagreed, pointing out that since the mid-1970s, there have been trade deficits in the US, long before foreign central banks began holding huge dollar reserves following the Asian financial crisis in 1997.
He added that the nation has a” trade deficit in goods and a net surplus in services ( of nearly$ 300 billion in 2024 ) but does not have a uniform trade deficit. He noted that businesses like Apple make a lot of money by creating high-quality materials while outsourcing manufacturing to nations like China and India.
Rajan further questioned Miran’s claim that US Treasuries ‘ foreign demand does not “reflect for a premium, giving the US much benefit from producing high-demand economic assets,” adding,” Why had such need hold up the dollar but not drive down US bond rates”?
Rajan argued rather that Congress relies solely on international investors to cover its deficits and simply spends easily. He claimed that the US was simply “run smaller shortfalls” and profit from even lower saving costs if demand for treasuries were certainly increased.
The former chancellor of the RBI had a skepticism about Trump’s aggressive policy toward global trade.
While Miran noted that “tariffs may partially be offset by a stronger money, as was the case in 2018-19, when the US imposed sweeping tariffs on China,” Rajan warned that such tactics would push foreign central banks to offer US treasuries, making it more difficult for America to fund its macroeconomic shortfalls.
He acknowledged that there are global imbalances, citing problems like unfair trade practices by some US lovers and Chinese under-consumption. Rajan also argued that negotiations, rather than monetary coercion, would be the best way to address these issues.
In the end, Rajan argued that Trump’s laws reflect a wider shift in how the US views the world economy it contributed to.
While Miran and some claim that the economy’s position as a problem, it was suggested otherwise by their reluctance to abandon it. The former government warned that the US might find itself carrying a true economic hardship if Trump’s” shock and awe” strategy alienates supporters and weakens trust in the money.
