Renowned economist Raghuram Rajan challenged the Trump administration’s economic views, especially on trade deficits and the US dollar’s global influence. He disagreed with economist Stephen Miran’s claims, arguing that America’s trade deficits are due to excessive spending, not foreign demand for US financial assets.
Miran, nominated to Trump’s council of economic advisers, suggested that high demand for US Treasuries forces the country to run fiscal deficits, keeping the dollar strong and hurting American exporters.
Rajan, however, disagreed, pointing out that the US has had trade deficits since the mid-1970s—long before foreign central banks started holding large dollar reserves after the 1997 Asian financial crisis.
He further highlighted that the country does not have an uniform trade deficit, “rather, it has a trade deficit in goods and a net surplus in services (of nearly $300 billion in 2024)”. He pointed out that companies like Apple generate massive profits by designing high-value products while outsourcing manufacturing to countries like China and India.
Rajan also questioned Miran’s argument that foreign demand for US Treasuries does not “reflect such a premium, giving the US little benefit from producing high- demand financial assets”, adding, “Why would such demand hold up the dollar but not push down US bond rates?”
Instead, Rajan believed that Congress simply spends freely, relying on global investors to fund its deficits. If demand for treasuries were truly excessive, he argued, the US could just “run smaller deficits,” and benefit from even lower borrowing costs.
The former RBI governor was also sceptical of Trump’s aggressive stance on global trade.
While Miran pointed out, “tariffs will partly be offset by a stronger dollar, as was the case in 2018-19, when the US imposed sweeping tariffs on China,” Rajan warned that such tactics would force foreign central banks to sell US treasuries, making it harder for America to finance its fiscal shortfalls.
He acknowledged that global imbalances exist, citing issues like Chinese under-consumption and unfair trade practices by some US partners. However, Rajan also contended that these concerns would be best addressed through negotiations, not economic coercion.
Ultimately, Rajan argued that Trump’s policies reflect a broader shift in the US’s attitude towards the global economic system it helped create.
While Miran and others portray the dollar’s dominance as a burden, their reluctance to relinquish this “burden” suggested otherwise. If Trump’s “shock and awe” approach alienates allies and weakens confidence in the dollar, the former governor warned, the US may one day find itself carrying a real economic burden, one that it made on its own.
