An Exorbitant Burden, And The Bill Is Paid In Factories

The reserve role is not a gift. Foreign demand for a safe asset is demand for dollars, and demand for dollars is a bid under the exchange rate that has nothing to do with what American producers need it to be. American Compass puts the mechanism plainly: while the current international monetary system has supported American consumption, it has damaged U.S. production, and open capital markets and a free-floating dollar have accelerated deindustrialization. The consumption is real. So is the bill.

Oren Cass has said where he stands on the framing itself. "I'm very sympathetic to the case that it is an exorbitant burden rather than an exorbitant privilege," he told American Compass's own readers, adding that reserve status "has not proved to have a correlation with what is good for most American communities and typical American workers." That is the whole disagreement with the mainstream compressed into a sentence: not whether the dollar is strong, but who has been paying for it.

Being able to borrow cheaply is only a privilege if you wanted the debt. Offered to a country that wanted the factories, it is a charge.

Stephen Miran, who now chairs the Council of Economic Advisers, wrote the diagnosis out before he held the job: persistent dollar overvaluation driven by inelastic demand for reserve assets, with the manufacturing and tradeable sectors bearing the brunt. It is worth being exact about what this standpoint takes from him and what it does not. The diagnosis is shared. The remedy is not — the standpoint's own press has rejected the Mar-a-Lago Accord while keeping every word of the analysis that led to it.

Which is why tariffs alone were never going to be enough, and the record since 2018 shows it: duties went up on China and the deficit went up anyway, because the currency channel was left wide open and an overvalued dollar undoes at the exchange rate what a tariff does at the border. This standpoint is also willing to police its own excesses — the strong form of the petrodollar-war thesis, argued from inside the standpoint rather than against it, does not survive contact with its own record. The burden argument does not need it.

The reserve role is not a gift, and calling it a privilege has done more to confuse this argument than any single piece of analysis has done to clarify it. Foreign demand for a safe asset is demand for dollars. Demand for dollars is a bid under the exchange rate. That bid has nothing whatever to do with the level at which American producers can sell into a world market, and it does not go away when it is inconvenient. American Compass puts the mechanism without ornament: while the current international monetary system has supported American consumption, it has damaged U.S. production, and open capital markets and a free-floating dollar have accelerated deindustrialization.

Oren Cass has said where he stands on the framing itself. "I'm very sympathetic to the case that it is an exorbitant burden rather than an exorbitant privilege," he told American Compass's own readers, adding that reserve status "has not proved to have a correlation with what is good for most American communities and typical American workers." That is the whole disagreement with the mainstream compressed into two clauses. Not whether the dollar is strong. Who has been paying for it.

The accounting identity is the part nobody disputes and everybody talks past. If the world wants to accumulate dollar assets, the United States must run the current account deficit that supplies them. There is no arrangement in which foreigners hold ever more American paper and America also sells more than it buys; the two are the same sentence read from opposite ends. So the question is never whether the deficit exists but who absorbs it, and the answer is the tradeable sector — the firms that have to meet a foreign price, which is to say the factories.

Being able to borrow cheaply is only a privilege if you wanted the debt. Offered to a country that wanted the factories, it is a charge.

Michael Pettis put it in five words before any of this was fashionable: being able to take on debt is not a privilege. Stephen Miran, who now chairs the Council of Economic Advisers, wrote the diagnosis out before he held the job — persistent dollar overvaluation driven by inelastic demand for reserve assets, with the manufacturing and tradeable sectors bearing the brunt. It is worth being exact about what this standpoint takes from him and what it leaves. The diagnosis is shared and has been for fifteen years. The remedy is not: this standpoint's own press has rejected the Mar-a-Lago Accord while keeping every word of the analysis that led to it, on the grounds that a negotiated devaluation administered by the same institutions that produced the overvaluation is not obviously an improvement on the overvaluation.

The obvious objection is that tariffs were supposed to fix this, and the record since 2018 answers it. Duties went up on China and the deficit went up anyway, because the currency channel was left wide open and an overvalued dollar undoes at the exchange rate exactly what a tariff does at the border. A 20 per cent duty met by a 20 per cent appreciation is a transfer from the Treasury's counterparties to its revenue line and nothing else. That is not an argument against tariffs; it is an argument that a trade policy which ignores the exchange rate is not a trade policy.

This standpoint is also willing to police its own excesses, which is more than can be said for the version of it that circulates online. The strong form of the petrodollar-war thesis — that American military action follows attempts to price oil in other currencies — has been examined from inside the standpoint rather than against it, and does not survive contact with its own record. The burden argument does not need it. It rests on an accounting identity and a decade of manufacturing employment data, and it is strongest when it is stated without the conspiracy attached.