By Dr. George Calhoun
Executive Director of the Hanlon Financial Systems Research Center at Stevens Institute of Technology
This Spring, economists everywhere, amateur and professional, got a new study assignment: tariffs.
An old-school, back-burner policy issue, the tariff question jumped out of the history books (the McKinley presidency, Smoot-Hawley 1930, etc.) and onto the front pages here in 2025. “Liberation Day” created such a storm of controversy that, like so many of us, I was diverted from other plans and forced to deal with it, to learn the vocabulary, to recall the history, and to pick apart the complex uncertainties. The result for me has been three installments so far (here, here and here) with several more to come, I expect.
In writing for Forbes, my general principle is to avoid editorializing (there is certainly more than enough of that out there) but the new tariff proposals are so bewildering that inevitably many of my friends and correspondents have wanted to know “What-I-Think”.
And so –
A couple weeks ago I got a query from a reporter, who posed a number of questions about the Trump administration’s tariff gambit – which I tried in good faith to answer, based on the current and highly imperfect state of my knowledge of the subject. It occurred to me afterwards that these brief and relatively unencumbered responses might serve as a preliminary and partial statement of my conclusions about some of this.
One of the questions cited below referenced a recent and now quite widely cited paper by Stephen Miran, formerly of Hudson Bay Capital and now Trump’s choice as the Chairman of the Council of Economic Advisors. Titled “A User’s Guide to Restructuring the Global Trading System,” it puts forward a provocative thesis: because the dollar is in effect the world’s reserve currency, it is overvalued due to “inelastic demand” for dollar-denominated reserve assets by foreign central banks and many others. In other words, there are many economic actors globally who need to hold dollars for various reasons unrelated to the real economic value of our currency or our economy. These buyers are willing to pay a premium to acquire dollar reserves, and the price of the dollar is bid up. This creates trade imbalances because U.S. dollar-priced exports are overvalued and become uncompetitive, whereas U.S. consumers’ dollar-priced purchasing power for undervalued foreign imports is stimulated. QED, growing trade deficits.
Miran’s thesis invites a much more substantive assessment than what is provided here. In a future column, I expect to address the general question of “elastic” or, as I prefer to call it, “price-insensitive” demand for Treasury Bonds, which is a larger subject than the trade policy perspective alone would suggest.
So what follows is the colloquial Q&A, more or less unedited, from my email exchange with that reporter. It may be in some respects clearer, and more concise, than the analyses comprising the more substantive columns mentioned above. (The reporter’s questions are in bold.)