But that objective stands in contrast with a macroeconomic policy mix that will most likely result in the opposite taking place.
That is, government-financed tax cuts and increased spending will put more cash in the hands of firms and households, which will increase spending and aggregate demand. That demand will create the conditions for rising yields as public and private actors chase scarce capital, causing the dollar to appreciate.
All of this will cause the trade and current account deficits to widen, not narrow.
This is why the administration is so focused on imposing tariffs, which are the symbolic heart of the administration’s efforts to rebalance the global economy.
But that is not how financial markets are likely to behave with respect to valuation of the dollar and the setting of interest rates.
Instead, the way to narrow the trade and current account deficits is through fiscal consolidation, featuring higher taxes and reductions in government spending.
That approach would promote a weaker dollar as a complement to a selective tariff policy. But that approach is clearly not on the agenda for this administration.
Given the basic inconsistency inside this economic framework, something has to give over time.
Under Trump’s policy framework—which we think will be implemented—the administration will be forced to consider either far higher tariffs than those being discussed or turn to devaluing the dollar, something the president and Treasury Secretary Scott Bessent have said they do not support.
Or, the administration will have to consider taxing the purchase of U.S. government securities by foreign entities, which would drive up yields.
This administration is not the first nor will it be the last to have a set of contradictory economic policies and objectives.
The extent to which it achieves a synthesis might be determined by the financial markets. If the internal contradictions of the policy framework are not resolved, the bond market will push yields higher, and the markets will become the ultimate arbiter of whether the policies succeed or fail.