Takahide Kiuchi, Executive Economist, Financial Technology Solution Division
The tariff policies launched by the Trump Administration with the aim of slashing the U.S.’s trade deficit have been facing a severe backlash from other countries. They’re also coming under growing criticism from U.S. companies and even citizens over fears that the tariffs will lead import prices to rise. On May 28, 2025, the U.S. Court of International Trade delivered a ruling stating that the across-the-board tariffs and the retaliatory tariffs placed on China, Mexico, and Canada were illegal. The U.S. Court of Appeals for the Federal Circuit Court has since handed down its own ruling staying that order, and therefore the tariff policies remain in effect for now. Yet we can also expect that more such rulings finding the tariffs to be illegal will be forthcoming. Amid this backlash, the Trump Administration might seek to pivot its policy focus from tariffs to weakening the dollar.
Aiming to Restructure the Bretton Woods System
While signs are starting to emerge that the tariff policies have reached an impasse, these policies arguably are only one part of the Trump Administration’s larger concept, which is to fundamentally transform the postwar global order that began in 1944 with the Bretton Woods system. If the tariff policies stall, the Trump Administration may well shift its focus to the next policy. And that would be weakening the dollar.
Treasury Secretary Scott Bessent, advocating for a “restructuring of Bretton Woods”, called for (1) transforming the U.S. economy from a major consumer to a major producer through tariff policies, (2) correcting the strong dollar while also maintaining the dollar’s status as the world’s reserve currency, and (3) sharing the security burden more fairly with other member nations.
Underlying this approach is the perception that during the post-war period, the U.S. has been forced by other countries to bear the brunt of this burden because of its leadership role. For President Trump, the greatest symbol of the burden unfairly imposed by other nations is the U.S.’s massive trade deficit, and for that reason, he is almost obsessed with eliminating that trade deficit.
Treasury Secretary Scott Bessent, advocating for a “restructuring of Bretton Woods”, called for (1) transforming the U.S. economy from a major consumer to a major producer through tariff policies, (2) correcting the strong dollar while also maintaining the dollar’s status as the world’s reserve currency, and (3) sharing the security burden more fairly with other member nations.
Underlying this approach is the perception that during the post-war period, the U.S. has been forced by other countries to bear the brunt of this burden because of its leadership role. For President Trump, the greatest symbol of the burden unfairly imposed by other nations is the U.S.’s massive trade deficit, and for that reason, he is almost obsessed with eliminating that trade deficit.
What is the Triffin Dilemma?
The Bretton Woods system was shaped by the bitter lessons learned after the global depression beginning at the end of the 1920s led to widespread protectionism and ultimately also to the Second World War. The aim was to promote free trade led by the U.S. and to build a stable international currency and payment system.
The gold standard regime, which was initially created using the dollar as the dominant reserve currency, collapsed with 1971’s Nixon shock (in which President Nixon ended the convertibility* of the dollar to gold), but subsequently the dollar has still remained the de-facto reserve currency throughout the world.
The one arguing that the dollar’s de-facto role as the worlds’ reserve currency has led the U.S. to be forced by other countries to bear this tremendous burden is Stephen Miran, Chair of the Council of Economic Advisers and the “brains” behind the president’s latest policy moves. Miran’s fundamental beliefs appear to be shared both by President Trump and by Treasury Secretary Bessent.
Miran ‘s personal philosophy is on display in the essay he published back in November 2024 titled ”A User’s Guide to Restructuring the Global Trading System”, in which Miran alludes to the “Triffin Dilemma”.
The “Triffin Dilemma” is a theory which states that no currency can simultaneously provide liquidity as the dominant reserve currency while also maintaining its credibility. If we take the dollar being the world’s de-facto reserve currency as an example, since much of global trade is contracted in dollars, the demand for dollars for trade settlement purposes will rise globally. That excessively boosts the dollar’s value, thereby reducing the U.S.’s international competitiveness, while also encouraging the growth of the U.S.’s trade deficit and current account deficit.
The growth of the current account deficit means a proportional rise in the U.S.’s external debt. That itself is nothing less than the currency’s liquidity supply function by providing the dollars needed around the world. However, when the trade deficit and the current account deficit continue to grow, it results in an oversupply problem that ultimately leads the dollar’s credibility to decline. That comes with the potential to challenge the dollar’s status as the world’s dominant reserve currency.
Thus, being a reserve currency involves an inherent contradiction that cannot be sustained, or so says the thinking behind the Triffin Dilemma. Yet in actuality, this de-facto dollar-based reserve currency system has endured since the end of the war, and so whether or not the Triffin Dilemma will come to pass is not really clear.
The gold standard regime, which was initially created using the dollar as the dominant reserve currency, collapsed with 1971’s Nixon shock (in which President Nixon ended the convertibility* of the dollar to gold), but subsequently the dollar has still remained the de-facto reserve currency throughout the world.
The one arguing that the dollar’s de-facto role as the worlds’ reserve currency has led the U.S. to be forced by other countries to bear this tremendous burden is Stephen Miran, Chair of the Council of Economic Advisers and the “brains” behind the president’s latest policy moves. Miran’s fundamental beliefs appear to be shared both by President Trump and by Treasury Secretary Bessent.
Miran ‘s personal philosophy is on display in the essay he published back in November 2024 titled ”A User’s Guide to Restructuring the Global Trading System”, in which Miran alludes to the “Triffin Dilemma”.
The “Triffin Dilemma” is a theory which states that no currency can simultaneously provide liquidity as the dominant reserve currency while also maintaining its credibility. If we take the dollar being the world’s de-facto reserve currency as an example, since much of global trade is contracted in dollars, the demand for dollars for trade settlement purposes will rise globally. That excessively boosts the dollar’s value, thereby reducing the U.S.’s international competitiveness, while also encouraging the growth of the U.S.’s trade deficit and current account deficit.
The growth of the current account deficit means a proportional rise in the U.S.’s external debt. That itself is nothing less than the currency’s liquidity supply function by providing the dollars needed around the world. However, when the trade deficit and the current account deficit continue to grow, it results in an oversupply problem that ultimately leads the dollar’s credibility to decline. That comes with the potential to challenge the dollar’s status as the world’s dominant reserve currency.
Thus, being a reserve currency involves an inherent contradiction that cannot be sustained, or so says the thinking behind the Triffin Dilemma. Yet in actuality, this de-facto dollar-based reserve currency system has endured since the end of the war, and so whether or not the Triffin Dilemma will come to pass is not really clear.
- *Convertibility: In general, this refers to the ability of a currency to be “swapped” or “exchanged”. In particular, it entails exchanging banknotes or government notes with specie money such as gold and silver coins or gold and silver metal having the same face value.
The No. 2 Policy Following Tariffs is the “Mar-a-Lago Accord”
Yet Miran believes based on the Triffin Dilemma theory that with the dollar being the de-facto global reserve currency, the U.S. has been forced the bear the heavy burden of a massive trade deficit which has put the country at an economic disadvantage.
Miran regards tariffs as the primary policy measure that the U.S. should use to transform the post-war international order that has placed this unfair burden on the U.S. In fact, it’s through these tariffs that the Trump Administration is aiming to restore the U.S.’s former international competitiveness (which had declined with the extreme overvaluing of the dollar) and thereby eliminate the country’s trade deficit.
The putative no. 2 policy following that is weakening the dollar. In Miran’s eyes, the tariff policies and the policy for a weaker dollar are a policy pair intended to give the U.S. back its international competitive edge and do away with its trade deficit. We may infer that President Trump and Secretary Bessent are of the same opinion.
Miran has proposed that the U.S. pursue policies to weaken the dollar by way of multilateral or bilateral monetary agreements. In that regard, the 1985 Plaza Accord serves as the model for multilateral monetary agreements. Miran has contended that the new multilateral monetary agreement being envisioned by the Trump Administration will serve as a “21st-century Plaza Accord”, which he has termed the “Mar-a-Lago Accord”, named after President Trump’s famed Florida villa.
Miran regards tariffs as the primary policy measure that the U.S. should use to transform the post-war international order that has placed this unfair burden on the U.S. In fact, it’s through these tariffs that the Trump Administration is aiming to restore the U.S.’s former international competitiveness (which had declined with the extreme overvaluing of the dollar) and thereby eliminate the country’s trade deficit.
The putative no. 2 policy following that is weakening the dollar. In Miran’s eyes, the tariff policies and the policy for a weaker dollar are a policy pair intended to give the U.S. back its international competitive edge and do away with its trade deficit. We may infer that President Trump and Secretary Bessent are of the same opinion.
Miran has proposed that the U.S. pursue policies to weaken the dollar by way of multilateral or bilateral monetary agreements. In that regard, the 1985 Plaza Accord serves as the model for multilateral monetary agreements. Miran has contended that the new multilateral monetary agreement being envisioned by the Trump Administration will serve as a “21st-century Plaza Accord”, which he has termed the “Mar-a-Lago Accord”, named after President Trump’s famed Florida villa.
Will the Trump Administration Demand that Japan Correct the Weak Yen and Cooperate in the Policy to Weaken the Dollar?
Currently, the U.S.-Japan currency talks are underway quite separately from the U.S.-Japan tariff talks, but the two discussions are intertwined, and the Trump Administration might also seek for Japan to correct the weak yen in return for a lower tariff rate, or to cooperate in the U.S.’s policy to weaken the dollar.
It seems unlikely at this time that other countries will implement currency interventions to sell the dollar and cooperate with the policy to weaken the dollar, as happened with the Plaza Accord. Achieving the “Mar-a-Lago Accord” as a multilateral monetary agreement will be difficult to do.
However, given that Japan has a weakness, namely its dependence on the U.S. for its security policy, the Trump Administration would arguably see Japan as being amenable or susceptible to any calls for cooperation in this dollar weakening policy. If the U.S. and Japan can work out a bilateral monetary agreement to weaken the dollar and strengthen the yen, that approach could then be taken with other countries as well, leading to multilateral monetary agreements, or so the Trump Administration’s aim would appear to be.
President Trump has previously criticized China as well as Japan for devaluing their currencies. While he has thus far refrained from leveling that criticism this time around, he might demand going forward that Japan fix the weak yen. The signs of this may be gleaned from the semiannual Report to Congress on Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States, which was released on June 5 by the Treasury Department.
The Report made the implicit criticism that the Japanese government has in essence induced the depreciation of the yen by increasing its investment of public pension funds into foreign financial assets. Conversely, it recognizes that the Bank of Japan’s monetary tightening policy has been helping to fix the yen’s excessive depreciation. Going forward, the Trump Administration might conceivably ask its Japanese counterparts make efforts to correct the weak yen by means of further monetary tightening or a dollar-selling, yen-buying intervention, or alternatively, to cooperate with the U.S.’s policy to weaken the dollar.
Yet if this leads the dollar to depreciate against a stronger yen too rapidly in the exchange market, it will create strong headwinds for the Japanese economy ,much as the current tariff policies have done. Even if the “first shot” in the form of the tariffs hit a dead end, and the Trump Administration decides to scale them back, the dollar weakening policy could still follow as the “second shot”. And any unease that these Trump Administration policies could undermine the stability the Japanese economy won’t be so easily dispelled.
It seems unlikely at this time that other countries will implement currency interventions to sell the dollar and cooperate with the policy to weaken the dollar, as happened with the Plaza Accord. Achieving the “Mar-a-Lago Accord” as a multilateral monetary agreement will be difficult to do.
However, given that Japan has a weakness, namely its dependence on the U.S. for its security policy, the Trump Administration would arguably see Japan as being amenable or susceptible to any calls for cooperation in this dollar weakening policy. If the U.S. and Japan can work out a bilateral monetary agreement to weaken the dollar and strengthen the yen, that approach could then be taken with other countries as well, leading to multilateral monetary agreements, or so the Trump Administration’s aim would appear to be.
President Trump has previously criticized China as well as Japan for devaluing their currencies. While he has thus far refrained from leveling that criticism this time around, he might demand going forward that Japan fix the weak yen. The signs of this may be gleaned from the semiannual Report to Congress on Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States, which was released on June 5 by the Treasury Department.
The Report made the implicit criticism that the Japanese government has in essence induced the depreciation of the yen by increasing its investment of public pension funds into foreign financial assets. Conversely, it recognizes that the Bank of Japan’s monetary tightening policy has been helping to fix the yen’s excessive depreciation. Going forward, the Trump Administration might conceivably ask its Japanese counterparts make efforts to correct the weak yen by means of further monetary tightening or a dollar-selling, yen-buying intervention, or alternatively, to cooperate with the U.S.’s policy to weaken the dollar.
Yet if this leads the dollar to depreciate against a stronger yen too rapidly in the exchange market, it will create strong headwinds for the Japanese economy ,much as the current tariff policies have done. Even if the “first shot” in the form of the tariffs hit a dead end, and the Trump Administration decides to scale them back, the dollar weakening policy could still follow as the “second shot”. And any unease that these Trump Administration policies could undermine the stability the Japanese economy won’t be so easily dispelled.
Profile
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Takahide KiuchiPortraits of Takahide Kiuchi
Executive Economist
Takahide Kiuchi started his career as an economist in 1987, as he joined Nomura Research Institute. His first assignment was research and forecast of Japanese economy. In 1990, he joined Nomura Research Institute Deutschland as an economist of German and European economy. In 1996, he started covering US economy in New York Office. He transferred to Nomura Securities in 2004, and four years later, he was assigned to Head of Economic Research Department and Chief Economist in 2007. He was in charge of Japanese Economy in Global Research Team. In 2012, He was nominated by Cabinet and approved by Diet as Member of the Policy Board, the committee of the highest decision making in Bank of Japan. He implemented decisions on the Bank’s important policies and operations including monetary policy for five years.
* Organization names and job titles may differ from the current version.