The Defunct Economist Who Shapes Trump’s Trade Policy

Robert Triffin’s ‘dilemma’ didn’t pan out, but it holds sway over some of the president’s key advisers

By Joseph C. Sternberg. Excerpts:

"Clocking the precise relationship between the current-account deficit and foreign demand for dollars is difficult because economists first must try to estimate what the current-account deficit “should” be. This is a perilous econometric procedure vulnerable to bad modeling and dubious data.

Economists nonetheless often conclude the U.S. current-account deficit is larger than theories predict. Yet this mysterious “extra” deficit doesn’t appear to be correlated with periods of more rapid foreign dollar-reserve accumulation. Sometimes foreign governments amass dollar reserves faster while the U.S. trade deficit is narrower. At other times the U.S. trade deficit becomes larger while foreign reserve accumulation of dollars slows."

"Foreign official accumulation of Treasury debt has slowed to a trickle since 2015. During the same period the current-account deficit deepened. Nor is there a global dearth of safe assets that an unwilling Congress must ameliorate by running fiscal deficits against lawmakers’ will (ha!). Holdings of Treasurys in foreign-government reserve funds have fallen for a decade, to around 16% of the total float held outside the Federal Reserve from a peak of about 40% in the aftermath of the 2008 financial panic." 

"The central fact of the global economy is that the U.S. is an engine of productivity growth and attracts investment to match. These capital inflows, which enrich the U.S., also allow America to run trade deficits that it can finance relatively cheaply."