Incoming Economic Chief Makes Case for 20 Percent Tariffs

President-elect Donald Trump's nominee to chair his Council of Economic Advisers, Stephen Miran, has made a case for amped-up tariffs to 20% even on allies, using ally security guarantees as the leverage to submit to them without retaliation.

"Retaliatory tariffs by other nations can nullify the welfare benefits of tariffs for the U.S.,"  Miran, 41, wrote in his November report for Hudson Bay Capital, "A User's Guide to Restructuring the Global Trading System."

There is a danger of using the leveraging tool of tariffs, but there is a way to mitigate that, wrote Miran, who has a doctorate in economics from Harvard, The Wall Street Journal reported. 

The report preceded Trump's nomination of Miran, who acknowledges the views are his own, not Trump's, and were published to "understand the range of possible policies that might be implemented."

"Sweeping tariffs and a shift away from strong dollar policy can have some of the broadest ramifications of any policies in decades, fundamentally reshaping the global trade and financial systems," he wrote, with a caveat.

To deter retaliation, Miran wrote, Trump could "declare that it views joint defense obligations and the American defense umbrella as less binding or reliable for nations which implement retaliatory tariffs."

That notion is not unlike Trump's famed pressuring NATO to upgrade its contributions to 2% gross domestic product during his first administration.

Trump frequently tells the story of the closed-door meeting with NATO allies during which he told one that its U.S. security guarantee in Europe would end if it was "delinquent" on payments to NATO under the 2% of GDP commitment.

Like Trump, Miran called tariffs a tool in global trade and defense, but Clinton administration economist David Cutler said Miran is not one to say "all academics must be wrong," but one that is "guided by the theory and evidence," according to the Journal.

Miran admitted there is a fine needle to thread on implementing high tariffs. 

"There is a path by which these policies can be implemented without material adverse consequences, but it is narrow," he wrote in his report.

Miran proposed the U.S. "could weaken the dollar through a 'Mar-a-Lago Accord,' modeled on the 1985 Plaza Accord in which the U.S. and its allies jointly acted to drive down the dollar," the Journal reported.

"After a series of punitive tariffs, trading partners such as Europe and China become more receptive to some manner of currency accord in exchange for a reduction of tariffs," Miran wrote.

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