The financial media and mainstream economists have attacked Trump’s proposed use of tariffs as inflationary and counterproductive.
Perhaps Miran’s greatest challenge will be to prove that tariffs are not only non-inflationary but can help the United States in multiple ways.
In a paper published just last month titled A User’s Guide to Restructuring the Global Trading System, Miran outlined his perspective on tariffs as a primary tool to offset the negative effects of having the global reserve currency.
Miran refers to empirical evidence that tariffs did not cause inflation during Trump’s first term. He points out that Core Personal Consumption Expenditure (PCE) growth, the Fed’s preferred inflation metric, was below the Fed’s 2% target for nearly all of Trump’s first term.
Miran also provides several compelling theoretical and technical explanations as to why tariffs should not be inflationary and why other economists have miscalculated the impact.
Among other points, Miran observes that three-quarters of the inflationary impact of tariffs on Chinese goods were offset by currency depreciation.
Growing without inflation
In various interviews, Miran has spoken at length how the U.S. can achieve non-inflationary economic growth.
Borrowing, spending and printing money can achieve inflationary economic growth, but this growth is illusory. This is what we saw during the Biden administration.
In periods of inflationary growth, asset prices can rise in nominal terms and perhaps even real (inflation-adjusted) terms. But wage earners without substantial assets suffer as goods and services become more expensive. To make matters worse, they get priced out of assets, like homes.
A major reason Trump won the election is the progress he made with younger voters. The Biden economy was especially painful for younger voters, who generally did not benefit from inflation-driven growth in the stock market and housing prices.
The combination of elevated house prices and high interest rates on mortgages has resulted in the dream of home ownership becoming totally out of reach for many young Americans. Kamala Harris likely paid a big price for this.
Managing the Treasury market
Markets are currently anxious that Trump’s growth plans will stimulate demand and drive up inflation.
Long-term treasury yields have crept up, which has been a headwind to the stock market in December, as we have discussed. Higher long-term interest rates are bad for stock valuations.
There is no question that Trump cares about the performance of stocks and views it as a barometer of success.
Arguably the key challenge for Trump’s new economic team will be to make the economy grow without driving up inflation expectations and long-term interest rates.
The fact that Trump chose Miran, who is very much focused on this issue, is an indication of just how crucial Trump believes it is to deliver growth in a non-inflationary manner.
Deregulation and innovation
Miran talks a lot about deregulation as a deflationary force. This relates to the supply side logic of his mentor Feldstein.
When it becomes more difficult, expensive and time-consuming to deliver goods and services, prices inevitably rise. The essence of deregulation is to make it easier, cheaper and faster for businesses to serve their customers.
The process of deregulation, such as expediting zoning permits, removes bottlenecks that slow down, complicate and distort economic activity.
Innovation is another key driver for a nation that wants to generate real economic growth. Innovation translates into productivity growth.
Productivity growth simply means producing more with less. It is inherently deflationary.
Miran has noted the enormous opportunity to leverage Artificial Intelligence (AI) to drive up productivity growth. He strongly supports industrial policy, like paving the way for expansion of the electric grid, that enables AI-related investments.
Miran has not spoken to our knowledge in tremendous detail about cryptocurrency, but what he has said has also been supportive. He views digital assets as a form of financial innovation that will reduce the cost of financial transactions and will stimulate business activity.
National security
Another dimension of Miran’s body of work is that he does not view economic policy in isolation. This is especially relevant given the importance of China as a major trading partner.
Tariffs function as a mechanism to protect the manufacturing sector from the overvaluation of the U.S. dollar that comes from it being the reserve currency.
But tariffs also function to preserve the ability of the U.S. to produce critical goods.
Just as Miran appreciates the value of having the global reserve currency from a geopolitical perspective, he gets that tariffs can be deployed in a way that prevents the disintegration of crucial domestic supply chains.
Market-oriented
While Miran is highly trained economist, he has worked in the private sector. Like his future counterpart Scott Bessent at Treasury, he has displayed an understanding that markets need to be handled carefully.
One reassuring observation Miran has offered regarding tariffs is the idea that tariffs can be deployed incrementally. He understands that markets do not appreciate shocks, surprises and uncertainties.
The Trump economic team is breaking with past practice in many ways, which has the potential to make investors nervous. But the world is now a much different place from what it has ever been.
Trump has re-written the political playbook and produced a Republican coalition and policy agenda that is a stark contrast from past Republican administrations.
The same inventiveness is now being applied to his economic team and strategy.
Trump wants to do things differently, but he is proceeding carefully. He is making sure to surround himself with competent and proven individuals who have a deep understanding of how markets and the economy actually work.
Like his mentor Marty Feldstein, Stephen Miran is not terribly well-known to the general public, but he now has a great opportunity to help craft the policies that will deliver the golden age Trump has promised American voters.
