Hacker News Reader

> Why must a country run a trade deficit to retain its global reserve currency status? Because when your currency is the global reserve currency, the entire world constantly hungers for it in order to use it in all the various countries’ international trade between each other. The only way to keep those countries constantly supplied with dollars is for Americans to buy tons of foreign imports, which effectively sends dollars to those countries, since these purchases are made with dollars

So... the problem with the US being the reserve currency is that it makes other countries cater to our tastes because they want our money...?

Yes, abd this appreciates USD, in turn makes production costs in US high, so the rest of the world doesn't buy what US produces.

It is by itself sustainable though as US doesn't only export produced goods but tech etc which the world wants. A valuable dollar funds this tech, in a sense whole world funds the US trch sector.

Not only “in a sense,” but also directly — many of the parent or grandparent LPs to US venture firms are foreign wealth funds, and US tech companies are (by way of our capital markets) held as an investment by many foreign nations (e.g. Norway’s sovereign wealth funds).

So we enrich foreign nations through our technology companies and capital markets. This is to the detriment of our domestic laborers, but it’s a great deal for our top ~30% “laptop class” that earn disproportionately well and have their savings stored in those same markets.

I'm not even sure that it is to the detriment of our domestic laborers. It certainly makes domestic manufacturing less competitive, especially the lowest skill/barrier to entry manufacturing. However, the US manufactures a LOT still, there are loads of reasonably well paying jobs for lower skill worker. I will say that housing and healthcare costs are high in the US but those are not things that are imported.

It also depends on what you think people want. Do they want a vast array of cheap consumer goods and entertainment, or do they want more affordable basics, like housing, cars, and healthcare?

If you go by PPP alone, the US is already in second place [0].

PPP is a horrible metric, but I’m not sure GDP per capita is any better.

[0]: https://en.m.wikipedia.org/wiki/List_of_countries_by_GDP_(PP...

More competitive US manufacturing wouldn't lead to more affordable basics, would it?

Arguably it would. Not my argument, but just listen to any of Bessent’s thinking on the topic.

His argument is pretty circular, which is e.g. not that Americans would work for Vietnamese wages but that we'd produce automation that can do the same work. But in that case: why aren't we doing that today?

The answer is that it's still more advantageous to pay Vietnam to make our clothes.

It's basically just no free lunch theorem: we can afford the CapEx of doing such a thing today precisely because we have better alternatives. If there were no better alternatives and we had to produce our own garments, we wouldn't be able to afford the CapEx to do it in a dramatically more labor-efficient manner.

You can't automate something that you can't already do manually (IMO/IME).

We could already do it, then we automated huge portions of it, then as other economies matured we handed that work to them and developed into a high-margin, high-income knowledge economy.

We can rewind back to a middle income economy if we want, I guess, but I don't see the appeal.

I'm open to the argument that we want some domestic mass manufacturing capacity for reasons of self-sufficiency, supply chain resilience, etc, but just come out and say it: we need handouts to keep certain strategic industries alive despite their lack of economic viability in the marketplace.

The people you are enriching in other nations are also the same class of those nations. Actually, even a smaller percentage of them. It's so much more harder to raise capital in the EU for tech start-ups for this reason. They prefer investing in the SV. Biggest money markets around here is the London City, whose money flow doesn't drip to the UK population.

These tariffs wouldn't hit these privileged people though, both in US and abroad, as they are planned and implemented by the same people. It will hit the lower classes, mostly the middle class.

I know that a quotation is not necessarily an endorsement, but this is a fantastically short-sighted idea.

> it becomes increasingly burdensome for the United States to finance the provision of reserve assets

How dare countries want pictures of dead Presidents so badly that... they're willing to send real goods to the United States for its consumption, with no expectation of reciprocation.

> and the defense umbrella

... and agree to a de-facto policy of minimal militarization, such that they could not pose a threat to America's global security interests, no matter what it decides those are.

A few hundred years ago, this would look like a tribute system. It's unfathomable that a nation in such a privileged position would decide it's tired of such a systematic set of advantages.

> as the manufacturing and tradeable sectors bear the brunt of the costs...

What's the saying, they've tried nothing and are all out of ideas? Industrial policy is a known and understood thing. The US has this in its defense sector even it doesn't want to admit it, and the CHIPS act was another attempt for the semiconductor industry.

This sort of policy is far more targeted and far less disruptive than blowing up international supply chains in hope of repatriating sweat-shop sneaker sewers and factories for five cent injection molded widgets.

You’re right about all you say. But the US has struggled to implement even the simplest forms of industrial policy because other countries are so extremely price-competitive, and our markets so unbridled, that our “elites” have eroded our industrial base to drive shareholder returns.

If not through tariffs, how else do you force reindustrialization? Industrial policy will always fail if it’s driven by a chimeric political system where both sides are incentivized to grow “The Economy” by eroding domestic capacity.

The CHIPS Act is too little, too late (when you’re competing with a fast-accelerating rival that is simultaneously your largest debt-holder and main industrial base).

Why is it important to force reindustrialization?

Let’s axiomatically presume that vertical integration (of your supply chain, manufacturing, software development, labor force, etc.) is the key to “innovation” in the abstract. You can see this starting to happen with BYD, the Chinese electric car company, for example.

With the above in mind, let’s say your goal as a country is to develop your industries so you can achieve broad vertical integration.

Soft economic assets (financial markets, legal structures, software, pharma, IP, etc.) are easier to bootstrap once you have hard economic assets assets (commodities, energy, manufacturing, transportation, logistics, etc.). If you lose your hard economic assets and only have soft ones, you are at a strategic disadvantage because your opponent (in this case China), can bootstrap their soft assets relatively quickly. By comparison, it will take you much longer to get your hard assets back (through the mythical process of “reshoring/reindustrialization”).

More in my comment here: https://news.ycombinator.com/item?id=43589566.

What makes you think the United States has lost hard economic assets? Also, have you considered that there are different types of innovations, that are affected by the structure of an economy and its research institutions?

The US has dominated radical innovations, China has excelled in incremental innovations. We're potentially throwing away our advantage in the former by decimating our research capacity (something conspicuously absent in your concept of what drives innovation), and there is no clear plan to take the necessary steps to rebuild our capacity in the latter.

I’ve never said I agree with how the current administration is going about their business. But it’s instructive to understand their perspective.

My comments in this thread are mostly informed by everything I read about Bessent.

The Pandemic exposed the reasons why pretty clearly. Having e.g. critical medicines manufactured by a geopolitical and military adversary is a very bad idea.

The problem is that the tariffs can be undone by the next president. I think that would discourage any investment in industry here. Even if this works, I feel like there is now a political commitment to undoing the tariffs.

This is a big problem with the strategy.

Of course, if you manage to dismantle checks and balances, manipulate elections, and stay in for a third term, you fix the problem…

You do introduce a lot of other problems, in the line of "Nice factory you have there, it would be a shame if you happened to fall out of a window."

They can, yes. But this is likely harder than you think. Suppose Trump puts a bunch of tariffs on cheap Chinese tires so that American tires are price competitive again (no idea if this happened, this is a hypothetical). If the next president removes those tariffs it would look like fucking over the tire manufacturers in whichever swing state they live in.

That's only if American tire companies choose to invest as if the tariffs will stick around for longer than Trump does.

This isn't the first time Trump imposed tariffs. Did Biden remove them during his term?

Biden did remove some of them.

Ya I just have a suspicion that for some industries maybe easily done but for others, four years isn't long enough to embed yourself in an economy to the point where you have political support. It's not a bad idea to onshore some manufacturing. Like targeting the semiconductor and medicine industries should be a higher priority than autos I think. But what could happen is the companies put on a show of onshoring but nothing is really done because they know four years isn't long enough. For those two industries I suspect it's not.

US manufacturing is at an all time high in terms of output. Less people are needed in that sector because it's an area where automation is highest. I agree that there is a national security reason to have tariffs to protect some manufacturing, but that should be a precision targeted tariff if anything.

Your level of paranoia and aggression will vary depending on how hawkish you are. If you’re more hawkish you’ll be more aggressive and make your move as early as possible, and you’ll also tolerate a lot more pain to achieve your goal. Bessent seems pretty determined.

I do think it’s clear that our industrial capacities have eroded. Look at our infrastructure compared to China. We lag on every metric: transportation initiatives, building projects, solar production, new energy plants, and so on. Manufacturing is just 1/10th of the “full stack”.

I’m not making any political commentary as to whether tariffs are the right move or not, I’m only explaining the line of reasoning.

but america doesnt want solar production, building projects, or transportation initiatives.

new roads and oil only.

Well, I’ve never said I agree with how the current administration is going about their business. But it’s instructive to understand their perspective.

> Industrial policy will always fail if it’s driven by a chimeric political system

I think you're begging the question here that a chimeric political system can craft an effective, long-term tariff policy if it can't craft a long-term industrial policy.

In both cases, the operative phrase is long-term. IF they're to be effective, either set of policies needs to look a decade ahead, and an industrial policy still wins compared to shotgun tariffs.

The Miran paper envisions long-term investment in US industry, e.g. see recent TSMC-Intel partnership and $100B investment in US manufacturing, brokered by the current administration.

Didn't Biden make a huge agreement with TSMC, already?

This more than doubles the previous investment, https://techcrunch.com/2025/03/03/tsmc-pledges-to-spend-100b...

  TSMC previously pledged to pour $65 billion into U.S.-based fabrication plants and has received up to $6.6 billion in grants from the CHIPS Act, a major Biden administration-era law that sought to boost domestic semiconductor production. The new investment brings TSMC’s total investments in the U.S. chip industry to around $165 billion, Trump said in prepared remarks.

> unfathomable that a nation in such a privileged position would decide it's tired of such a systematic set of advantages.

That's just the thing, you've got it exactly backward! The US has been "looted, pillaged, raped and plundered by nations near and far," and it's far less rich than it should be.

Icarus is taking flight, the rest of the universe better watch out. And for those stuck getting carried along toward the sun... tough shit, there's not going to be enough time to convince a population of born and bred narcissists that it's really hot up there before the meltdown.

> As global GDP grows, it becomes increasingly burdensome for the United States to finance the provision of reserve assets and the defense umbrella

I don't understand. US share of global GDP is around where it was in 1980, and in 1995[1]. Is Miran arguing that America's "exorbitant privilege" of being the source of the world's reserve currency, literally being able to buy goods from any country in the world with money printed out of thin air, is actually a liability?

[1] Page 8 of his paper

EDIT after reading through Chapter 2 of the paper: Thank you for sharing this. I don't agree with many of the arguments Miran is throwing out so far, but at least it's self consistent.

He is saying:

1. If the US's global share of GDP decreases, then a set of global economic factors will cause the US to keep having to take on deficits to fund the rest of the world's desire for USD (because that is the world's reserve currency). If the US becomes small enough relative to the world economy, then this pressure will cause the US to risk defaulting on its debt.

2. The US's status as the reserve currency issuer means US dollars are artificially expensive. This means that low margin, high-labor industries like manufacturing can't thrive in the US. This is a national security risk because China/Russia can make lots of tanks/drones/etc and we can't.

3. The US benefits from being the reserve currency issuer because it can use that power to project force worldwide and maintain national security.

4. (He doesn't say this, but implies it in that coy way that people who read The New Criterion like to do) #1 is an unacceptable risk for America, and the US should employ a range of unilateral or multilateral measures to reshape the global financial system in a way that devalues the US Dollar, strengthens US manufacturing, and forces US trading partners (esp. other liberal democracies) to subsidize the US's status as the reserve currency issuer, since the US provides a global hegemony that is beneficial to them.

Also, having read portions of the Project 2025 "Mandate for America," it's really interesting to me how all of these right wing thinktank writers (Russ Vought, Max Primorac, and now Miran) seem to share the same writing style.

You and I don't get to print money. Other classes do.

Even being “close” to where the money is printed gives you enormous benefits. Average Americans don’t get this. Companies like Black Rock gain enormous power over the US and other nations.

Yes, it is a liability, because in exchange for your reserve currency status you are indebting your country. Gradually, as you outsource more and produce less, your country derives more and more of its returns from soft economic assets (financial markets, legal structures, software, pharma, IP, etc.), than hard economic assets (commodities, energy, manufacturing, transportation, logistics, etc.).

In the long run, this hollows out your industrial base, drives income inequality (because labor is devalued when products/soft assets have zero marginal cost of replication), and defangs your country.

Said differently — vertical integration is the key to “innovation” in the abstract. You can see this with BYD.

With the above in mind, let’s say your goal as a country is to develop your industries so you can achieve vertical integration. Soft economic assets are easier to bootstrap once you have hard economic assets. If you lose your hard economic assets and only have soft ones, you are at a strategic disadvantage because your opponent (in this case China), can bootstrap their soft assets relatively quickly. By comparison, it will take you much longer to get your hard assets back (through the mythical process of “reshoring/reindustrialization”).

All that being said, this is not a commentary on the effectiveness of the tariff policy of the Trump administration.

Thanks for the explanation! Most of what you wrote makes sense to me. In particular, I think the concept that going hard -> soft economic assets is easier than the reverse is really interesting. I'll have to think on that more.

Things that still give me pause:

1. I don't understand why hard economic assets like manufacturing are more heavily impacted by this phenomenon. Wouldn't exporting a $50,000 car and a $50,000 software license have the same impact on the country's current account? I think it might have something to do with the marginal cost of replication point you made, but, for example, the marginal cost of manufacturing semiconductors is very small, and we trail in that too.

2. I disagree with your assertion that 'vertical integration is the key to “innovation” in the abstract.' I think this is often true, because vertical integration enables more control/flexibility and faster iteration, which allows innovation to occur. However, there are many cases (e.g. fabless semiconductors, meat poultry farming, software companies build on the cloud) where the innovation was actually to split the value chain into separate concerns with separate concerns.

1. The further you are up the chain of abstraction, the less “valuable” the export is as a form of power. Think of this as a spectrum between hard and soft assets — if you decline to sell advanced computing software to your rival, you may harm their ability to optimize crop yields, or whatever. But if you decline to sell them steel, or oil, you may decimate their energy supply and bring their economy to a halt.

So, generally speaking, harder assets have more “declination risk” for the purchaser than softer ones, because the softer ones are either a) at the tip of the value chain, or b) easier to clone and replace. China has done a great job of outright refusing US SaaS exports like social media companies, while “stealing” millions of Windows licenses from Microsoft.

Said differently, IP is fragile! If your opponent does not respect your laws, you can’t enforce them. Hard assets are the opposite, because you can more easily cut them off.

And again, they are usually at the bottom of the value chain, so everything else is dependent on them being available. No oil, no cloud computing. Not the other way around.

2. Great counterexamples. I think it depends on what you define as innovation, and perhaps more specifically what about innovation as a concept is important to you.

- There are “open” kinds of innovation that push humanity forward, grow global wealth and prosperity, and make everyone better off.

- There are also “closed” kinds of innovation that benefit only a particular group.

Generally speaking, open innovation is “fangless.” What I mean by this is that it does not greatly increase your geopolitical power. The Dutch, for example, own ASML, but this doesn’t really give them any power, because their tools are relatively “open”. Swiss companies own massive numbers of pharmaceutical patents, but that’s just a domicile on paper. If Switzerland were invaded tomorrow, their patent regime wouldn’t offer much protection.

By contrast, a more “closed” form of innovation (weapons manufacturing being the most extreme example) will dramatically increase your geopolitical power.

Think back to the atomic bomb. Now look to the future. If the US develops killer drone swarm technology, or genome-targeted bioweapons, or whatever else, that means we have the cards.

Once you have world (or space) domination technology, you can disproportionately benefit from it, and you can selectively enrich your allies by giving them access to it, like the US currently does with our weapons systems.

If you don’t vertically integrate, you can’t do closed innovation. And closed innovation is the only “hard money” — and perhaps the dominant power struggle in geopolitics.

The Dutch and Swiss are very powerful, relative to their size. You can say fantasy things like "if they were invaded tomorrow", but that's not reality.

The US has atomic weapons, but has lost almost every war it has started since having nukes. Having weapons doesn't mean you will be faced with contexts to actually use them. "Genome-targeted bioweapons" is just made up nonsense. Just making up "if" statements of fantastical capabilities that do not have grounding in reality is just that: fantasy. Living in fantasy land is how the richest nation the world has ever seen could lose a war to teenagers in Afghanistan.

The idea of an "atomic bomb" would have seemed fantastical before it was developed. Bioweaponry is underfunded, far more dangerous than you think, and is a hot topic for the PRC [0].

And let's be clear — the US did not "lose a war" in Afghanistan or Iraq. Yes, we had failed pseudo-occupations. That is not the same as losing a war. No country, save perhaps Iraq during the Gulf War, has experienced the force of a modern American army. And if you want know what happened during the Gulf War, look at the "Casualties and losses" section on the Wikipedia page [1]. Spoiler: America won, Saddam lost.

You, and I, and the entire world, have been living under a Pax Americana for the past 70-something years. As that world order fractures, you will see that no country without hard assets and military power, the Netherlands and Switzerland included, are as powerful as they may seem.

Friedrich Merz, the incoming German Prime Minister, spoke very eloquently about this in his first televised conversation. Germany will lead the re-militarization of Europe (disclaimer: I am also a German citizen) [2].

[0]: https://en.wikipedia.org/wiki/Ethnic_bioweapon#People's_Repu...

[1]: https://en.wikipedia.org/wiki/Gulf_War

[2]: https://www.youtube.com/shorts/CBhioWra4rA

America didn't lose the Iraq War to Saddam, it lost to disparate groups of Islamic jihadis who read some Mao.

Losing a war is not body counts, it's a military withdrawal after a failure to achieve objectives. It doesn't mean there are winners.

America went into Afghanistan to destroy Al-qaeda and remove the Taliban from power. At the end of the war, the Taliban were back in power and global jihadism is even stronger and more pervasive than before. That is losing a war.

Pax Americana shows that big militarized states like the US and Russia (before that USSR) do not wield the operational war power they imagine. They lose every war they start (which, again, is not to say there is a triumphant winner).

> And let's be clear — the US did not "lose a war" in Afghanistan or Iraq. Yes, we had failed pseudo-occupations. That is not the same as losing a war.

You do not wage war for the sake of war, war is a tool for achieving political goals. What you're saying is that the U.S. won battles in these wars, but ultimately lost because they failed to achieve their political objectives — which were the very reasons the wars were started in the first place. They lost in Vietnam, Afghanistan, and Iraq. They lost all of these wars.

What were America's political objectives in those wars? There are stated and unstated objectives. We don't really know if they were achieved or not. Maybe Iraq was a Haliburton enrichment play... That's still going on [0]!

But you're not really right here. In both cases, American forces dismantled the initial enemy: the Taliban regime fell in 2001, and Saddam Hussein’s government collapsed in 2003. Combat superiority wasn’t the issue.

We "lost" because all of those wars were occupations. Locals just didn't care enough to keep us there, or vehemently opposed American presence. It's really, really hard to occupy a country that doesn't want you there, even if your military capacity is vastly superior.

Defending a nation like Taiwan or Japan is a totally different story. If you are defending a country from an external threat, they want you to stay.

I was responding to the above commenter, who wrote:

  > Living in fantasy land is how the richest nation the world has ever seen could lose a war to teenagers in Afghanistan.

What I'm pointing out is that the US has extreme combat superiority that no country has ever had to reckon with. And we have never waged "total war".

[0]: https://ir.halliburton.com/news-releases/news-release-detail...

Extreme combat superiority does not mean you are fighting a combat where that achieves your objectives. The reason the Taliban did not have to reckon with the full potential of the US military is because the US unleashing it's full power on them would be stupid. Your power is actually limited by the boundaries of rationality. The US (and to a lesser degree Russia) could in theory vaporize every city in any country, and kill everyone there. That's not actually a coherent goal (unless you like fantasizing about how powerful you are), and so it doesn't actually happen.

The development of nukes greatly reduced the possibilities of war between major nation states, and in the conflicts with minor states, nukes are not under consideration for use. Russia has never actually done any move with their nuclear weapon regiments to indicate using them, even though they are actively locked in a dumb war they underestimating that is costing hundreds of thousands of Russian lives. America kicked the Taliban out of power but could not keep the Taliban out of power, whether you left immediately or after 20 years. Your combat superiority doesn't mean you can defeat foreign militancies. Time and time again you have not defeated them. That is the reality. Fantasizing about unleashing the full combat superiority of the US military (nuking the entire landscape petulantly) to show that you are powerful is not a credible or coherent outcome... and lo it does not happen.

Finally, the US has waged total war since the end of WW2. Almost every substantial building in North Korea was destroyed in the Korean War. All of the dams and civilian infrastructure were entirely destroyed by US bombs. US bombers couldn't even find targets to indiscriminately bomb toward the end. And yet the US did not defeat the North Koreans.

(As a final note, DPRK started that war, not the US or its allies, so the primary objectives were inherently different and more defensive. Nonetheless, the use of total war did not achieve ultimate the victory it was aimed at.)

Right. You’ll notice I never mentioned WW2. I said this:

  > You, and I, and the entire world, have been living under a Pax Americana for the past 70-something years. As that world order fractures, you will see that no country without hard assets and military power, the Netherlands and Switzerland included, are as powerful as they may seem.

And that is true! The Korean War was more than 70 years ago.

Since then, US military-industrial capacity has absolutely ballooned. Our modern military is orders of magnitude more capable, armed, and well-equipped than the one which fought the Korean War.

I don’t get what point you’re trying to make. Your arguments are redundant and make no sense.

With regards to military engagements, I’m explicitly talking about non-nuclear engagements, and I’m pointing out that states without true military capability will not be “live players” in the new world order.

You can see this with Ukraine and Russia! Military mobilization and aid has boosted the Ukrainian military to the second largest in Europe. If they didn’t have that aid and that military power, you can be sure Kyiv would be Russified tomorrow.

> The Dutch, for example, own ASML, but this doesn’t really give them any power, because their tools are relatively “open”.

https://cset.georgetown.edu/wp-content/uploads/CSET-Tracing-...

  That a Dutch company, ASML, commercialized a technology pioneered in America’s national laboratory ecosystem and largely funded by Intel also has important lessons for policymakers interested in protecting and promoting the next emerging technology.

You prove my point.

Open innovation does not lead to geopolitical power.

There is one exception, which is that you can use your open innovation pipeline as a carrot to recruit intelligent people who then bolster your closed innovation ecosystem. The US used to be very good at this. We are still very good at this, but we're getting worse, and we're progressively more hostile to skilled immigration.

Is there any relationship between reserve currency, national security and power projection? https://apnews.com/article/shipbuilding-china-united-states-...

> In only two decades, China has grown to be the dominant player in shipbuilding, claiming more than half of the world’s commercial shipbuilding market, while the U.S. share has fallen to just 0.1%, posing serious economic and national security challenges for the U.S. and its allies, according to a report released Tuesday by the Center for Strategic and International Studies. In 2024 alone, one Chinese shipbuilder constructed more commercial vessels by tonnage than the entire U.S. shipbuilding industry has built since the end of World War II.

its kinda funny though, since US lack of shipbuilding is directly the result of protectionist law in the jones act

get rid of the jones act, and you get americans on boats again, rather than trucks

Do the waterways support ship freight anymore? We'd need to redevelop the Great Lakes and riverways I think.

Yes, that's exactly what a liability is! US currency is an IOU. The more of it out in the world the less value there is in America's domestic assets.

I meant "liability" in the sense of "is the US's status as the global reserve currency, on balance, a bad thing for the US?" not in the sense of "Is a US dollar abroad an asset or a liability on America's balance sheet?" Probably could have used a better word.

Curious on your thoughts in response to my sibling comment :)

i generally cannot go to the US government with a dollar to withdraw its worth in gold.

US debt is an IOU, but USD is just an object that i can barter with

Sure it's not exactly an IOU but it more or less entitles you to a certain bit of the American people's labor or assets. Billions / Trillions of dollars in USD overseas waiting to be traded in is not a good thing for people who aren't in a position of international rent seeking. The average American is harmed not helped by foreign trade.

The counterpoint to this is that the US as the reserve country means that it’s very cheap for the US to service its debt since it’s holds the money supply. It basically controls its own destiny in that sense.