Investing.com -- Stephen Miran, Chairman of the Council of Economic Advisers (CEA) at the White House, recently discussed the role of the United States in providing global public goods. He highlighted two key elements: the security umbrella and the dollar and Treasury securities. Both of these elements, Miran explained, are costly for the US to provide but have contributed to an era of global peace and prosperity.

The security umbrella, provided by the US, has led to what Miran calls the most peaceful period in human history. This peace is maintained by the sacrifices of American military personnel and the taxes levied on US citizens to finance global security. On the financial side, the reserve function of the dollar has resulted in persistent currency distortions and, along with unfair trade barriers from other countries, contributed to unsustainable trade deficits.

Miran clarified that by "reserve currency," he’s referring to all international functions of the dollar, including private savings and trade. The global use of the dollar for trade and savings, often in Treasury securities, means Americans are paying for global peace and prosperity, not just their own.

The Trump Administration, Miran stated, has begun to address these issues by reorienting defense and trading relationships to put Americans on fairer ground. The goal is to rebuild the industrial base and pursue trade terms that prioritize American workers and businesses.

Miran also touched on the connection between trade and defense. For instance, when two foreign nations, such as China and Brazil, trade with each other using US dollars backed by US Treasuries, they can do so freely and prosper. This trade is made possible by the US military ensuring financial stability and the credibility of US borrowing. However, this financial dominance has a cost, as it has led to currency market distortions that place burdens on American firms and workers, making them uncompetitive on the global stage.

In light of these issues, Miran suggested improved burden-sharing at the global level. If other nations want to benefit from the US geopolitical and financial umbrella, they need to contribute their fair share. This could take several forms, including accepting tariffs on their exports to the US without retaliation, stopping unfair trading practices, boosting defense spending and procurement from the US, investing in and installing factories in America, or simply writing checks to the US Treasury.

Miran also addressed the topic of tariffs, which are often dismissed by economists and investors as counterproductive or harmful. However, he argued that tariffs can improve economic outcomes, raise revenues, and impose losses for the tariffed nation, even with full retaliation. He cited the example of China bearing the cost of President Trump’s tariffs in 2018-2019 through a weaker currency.

He concluded by stating that burden sharing could allow the US to continue leading the free world for many decades. It is necessary not only for fairness but also for feasibility. If the US doesn’t rebuild its manufacturing sector, it will face difficulties in providing the security needed for safety and to underpin financial markets. The world can still benefit from the American defense umbrella and trading system, but it must start paying its fair share for them.

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