Today, let’s delve into the United States’ role in providing what economists refer to as “global public goods,” a service that, quite frankly, benefits the world more than it does us. First, the U.S. offers a security umbrella that has ushered in an unprecedented era of peace. Secondly, it supplies the dollar and Treasury securities, which serve as reserve assets facilitating a global trading and financial system that has, in turn, fostered an extraordinary period of prosperity.

However, providing these goods comes at a hefty price. Our brave military personnel put their lives on the line to safeguard our freedoms, while hardworking Americans bear the tax burden to fund global security initiatives. On the financial front, the dollar’s reserve status has led to persistent currency distortions and trade imbalances, ultimately harming our manufacturing sector and working-class families. Ironically, we’re financing a system that allows non-Americans to trade with one another, often at the expense of American workers.

When I refer to “reserve currency,” I’m speaking about all functions of the dollar in international trade, which often involves savings held in dollar-denominated securities. Therefore, Americans are effectively subsidizing peace and prosperity not just for themselves, but for the rest of the world.

President Trump has made it abundantly clear: he will no longer tolerate other nations enjoying the fruits of our labor without contributing. In his first hundred days, the Trump Administration has aggressively worked to recalibrate our defense and trade relationships to ensure that American interests come first. The President’s commitment to revitalize our industrial base and pursue equitable trade agreements is a clear response to this ongoing imbalance.

While I’m more of an economist than a military strategist, it’s crucial to recognize how intertwined trade and defense are. For example, imagine China and Brazil engaging in trade; they lack a reliable currency, making transactions difficult. However, thanks to the U.S. dollar, backed by U.S. Treasuries, they can trade freely—a privilege that exists only because of U.S. military strength ensuring financial stability. Our military and economic dominance are not guarantees; the Trump Administration is determined to preserve them.

That said, there’s a cost associated with our financial hegemony. While the demand for dollars keeps our borrowing rates low, it distorts currency markets and undermines the competitiveness of American products and labor. This has contributed to a significant decline in our manufacturing workforce, which has shrunk by over a third since its peak, alongside a staggering 40% drop in our share of global manufacturing production.

We must be capable of producing goods domestically, as evidenced during the COVID-19 pandemic when our supply chains faltered due to over-reliance on China, our foremost adversary. Relying on a competitor for essential equipment is a precarious position, especially when that same competitor benefits from the security and financial systems we fund.

Moreover, providing reserve assets can lead to undesirable outcomes. Countries may purchase our assets to manipulate their own currencies, keeping their exports cheap. Such actions can flood the U.S. economy with money, creating vulnerabilities. For instance, leading up to the 2008 financial crisis, China and other foreign institutions amassed significant holdings of U.S. mortgage debt, inadvertently fueling a housing bubble. China played a pivotal role in this crisis, and it took nearly a decade to recover until President Trump initiated corrective measures.

In my view, for the U.S. to continue offering these indispensable global public goods, there must be a more equitable distribution of the associated costs. If other nations wish to benefit from the U.S. geopolitical and financial umbrella, they need to contribute their fair share. The financial burden cannot rest solely on the shoulders of everyday Americans, who have already sacrificed so much.

The ideal scenario is one where America continues to foster global peace and prosperity while remaining the reserve provider, and other countries not only reap the benefits but also share in the costs. By enhancing burden-sharing, we can fortify resilience and preserve global security and trading systems for future generations.

Furthermore, addressing these issues is essential not just for fairness, but for maintaining our capacity. As hostile adversaries seek to erode our manufacturing and defense capabilities, we must recognize that we cannot sustain our defense or reserve assets with a diminished manufacturing base. The President has reiterated the commitment to retaining our role as the reserve provider, but this system must be restructured for fairness. We need to revitalize our industries to project the strength necessary to uphold our reserve status and finance our obligations.

So, what might this burden-sharing look like? Here are a few suggestions:

• First, other countries could accept tariffs on their exports to the U.S. without retaliating, generating revenue for the U.S. Treasury to support public goods provision. Retaliation only complicates the burden distribution and makes financing these public goods even more challenging.
• Second, they could halt unfair trading practices, opening their markets and increasing purchases from the U.S.
• Third, they can enhance their defense spending and procure more from the U.S., which would alleviate pressure on our servicemen and women while creating American jobs.
• Fourth, they could establish and operate factories in America, thus avoiding tariffs altogether.
• Lastly, they could contribute directly to the U.S. Treasury to help finance global public goods.

Let’s take a moment to focus on tariffs. Many economists and some investors dismiss them as counterproductive, but this perspective is misguided.

The prevailing economic consensus fails to account for the persistent trade deficits the U.S. has experienced for five decades, which have only widened recently—from about 2% of GDP during the first Trump Administration to nearly 4% in the Biden Administration. Remarkably, this occurred while the dollar appreciated, defying the expectation that trade deficits would weaken the currency, ultimately balancing imports and exports.

In reality, the demand for the U.S. dollar as a global reserve currency complicates the economic models that predict trade balance through currency adjustments. Recent analyses suggest that persistent trade deficits can exist without automatically correcting, a scenario that aligns more closely with the current U.S. economic situation. Imposing tariffs on exporting nations can yield favorable economic outcomes, generate revenue, and impose significant costs on the countries facing tariffs—even in the event of retaliation.

The concept of tariff incidence indicates that a substantial portion of the tariff burden is “paid for” by the countries subject to the tariffs. Those with large trade surpluses find it difficult to identify alternative markets, leaving them reliant on exports to the U.S., the largest consumer market. Meanwhile, America has ample alternatives: we can produce domestically or source from nations that engage in fair trade practices. This differential in leverage means that other countries often absorb the costs of tariffs.

During the 2018-2019 period, China bore the brunt of President Trump’s tariffs through a weakened currency, resulting in diminished purchasing power for its citizens. The revenue generated from these tariffs financed tax cuts for American workers and businesses. This time around, tariffs will help support both tax reductions and deficit reduction.

Lower taxes for Americans, partially funded by foreign revenue, will stimulate unprecedented economic growth and opportunity, heralding what could be termed a new Golden Age under President Trump. Additionally, reducing the deficit will help lower Treasury rates, consequently decreasing mortgage and credit card rates and stimulating an economic boom.

It’s crucial to note that tariffs are not merely revenue-generating tools. For instance, the President’s reciprocal tariffs aim to address both tariff and non-tariff barriers, alongside practices like currency manipulation and dumping that create unfair advantages. Revenue generation is a beneficial byproduct, and if it’s directed toward tax reductions, it can significantly enhance competitiveness, boosting U.S. exports.

In summary, burden-sharing is essential for the U.S. to maintain its leadership role in the free world for years to come. Achieving this is not just a matter of fairness, but of practicality. If we neglect to revitalize our manufacturing base, our ability to ensure security and underpin financial markets will be compromised. The world can continue to enjoy the benefits of the American defense umbrella and trading system, but it must also start contributing its fair share. Thank you, and I welcome any questions.

[1] https://fred.stlouisfed.org/series/MANEMP

[2] https://data.worldbank.org/indicator/BN.CAB.XOKA.GD.ZS?locations=US

[3] https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5008591

The post CEA Chairman Steve Miran Hudson Institute Event Remarks appeared first on The White House.