Lessons from the 'Nixon Shock' to the Trump administration

According to multiple media reports, Stephen Miran, Donald Trump’s chief economic advisor, sought to reassure major bond investors during a recent meeting, though his efforts appeared to have limited impact. Miran previously served as a senior economic policy advisor at the Treasury Department during Trump’s first term. In December 2024, Trump nominated him to chair the White House Council of Economic Advisers (CEA), a key position shaping the administration’s economic policy, writes Kung Chan, founder of ANBOUND.

Sources familiar with the matter revealed that on 25 April, Stephen Miran met with approximately 15 representatives from major financial institutions at the Eisenhower Executive Office Building, adjacent to the White House. Attendees included representatives from hedge funds Balyasny, Tudor, and Citadel, as well as asset management firms PGIM and BlackRock. According to individuals with knowledge of the meeting, Miran’s comments on tariff policy and financial markets were described as “incoherent”, “incomplete”, and “out of his depth”.

On 2 April, following Trump’s announcement of the “reciprocal tariffs”, U.S. stock and bond markets saw sharp volatility. Backed by Wall Street unease, some foreign governments, particularly in Europe, launched a geo-financial push against the U.S., triggering capital outflows from Treasury bonds and driving up yields. In response, the Trump administration paused the “reciprocal tariffs” for 90 days on select countries, bringing temporary market relief. Yet, investor anxiety persisted, leading Miran to convene a meeting with Wall Street leaders to clarify the policy.

Miran is the main architect of Trump’s tariff policy and is generally respected in conservative circles. He comes from a fairly typical background for U.S. government staff, a Harvard PhD holder who served in supporting roles, drafting policy and advising officials without deep economic expertise. Unlike seasoned Wall Street veterans or experienced policy strategists, Miran lacks the comprehensive, strategic understanding needed for high-stakes decision-making. It is no surprise that he struggled to respond effectively during coordination meetings. In a specialized society like the U.S., Miran tends to approach issues strictly from an academic perspective, with limited ability to connect economic policy to broader geopolitical strategy, such as leveraging the Ukraine war to influence financial markets. That kind of systemic thinking is not something he would have learned in the classroom, where theory and historical cases dominate. His lack of conviction in critical moments is, in that context, understandable.

In today’s global context, the “Nixon Shock” offers a valuable historical parallel. Announced on August 15, 1971, it included ending the convertibility of the dollar to gold, a 90 day freeze on wages and prices, and a 10 percent surcharge on imports. Nixon acted under pressure from European allies such as Switzerland, France, and the United Kingdom, which were rapidly exchanging dollars for gold. In just two months, Switzerland redeemed $50 million, France $91 million, and the United Kingdom requested $3 billion in gold transfers. These moves strained the dollar and forced Nixon to respond. Yet the broader geopolitical background of the dollar and gold decoupling is often overlooked today.

The tariff increase policy had four main objectives. First, to pressure countries like Japan and West Germany to revalue their currencies by imposing a 10 percent import tariff, aiming to reduce the U.S. trade deficit and protect the dollar’s global standing. Second, to improve the trade balance by curbing imports, boosting exports, and targeting a 13 billion dollar gain in the balance of payments. Third, to rally political support by shielding domestic industries ahead of the 1972 election. The Nixon administration implemented these measures under the same legal authority later used by the Trump administration, that is the Trading with the Enemy Act (TWEA) of 1917.

From a strategic policy perspective, the Trump administration could have adapted Nixon’s approach with minor adjustments to achieve its goals. Instead, Trump sharply escalated tariffs for political reasons, triggering an uncontrollable situation marked by capital flight, surging U.S. Treasury yields, and a stronger euro. Tariffs were never just about reshoring manufacturing. Under Nixon, they served as a negotiation tool to pressure export-heavy countries, such as Japan, to allow their currencies to appreciate.

Was the “Nixon Shock” successful? The results were mixed. In early 1973, the U.S. officially devalued the dollar, and by March, the G-10 adopted a floating exchange rate regime, ending the Bretton Woods system. While the policy achieved its goal of currency realignment, the dollar rose against the Deutsche mark and yen, ultimately depreciating by about one-third over the 1970s. The tariff hikes had limited direct impact on the trade balance; much of the improvement came from an unexpected port strike in late 1971 that cut imports. Politically, however, the “Nixon Shock” was a major success. By defending domestic industries and confronting “foreign price-gougers”, Nixon won strong public support and a landslide re-election in 1972. That being said, its long-term economic cost was high. The policy contributed to 1970s stagflation, with inflation hitting 11 percent and unemployment 8.5 percent by 1975. Despite this, Nixon’s popularity held, showing that public tolerance for economic pain can exceed market expectations, a lesson the Trump administration may find relevant: the political impact of inflation is often overstated.

The “Nixon Shock” had limited success in reducing the U.S. trade deficit, which remained at $6.5 billion in 1972. From 1973 to 1975, rising government spending, stagflation, and volatile floating exchange rates further weakened the trade position. In this sense, the policy failed to deliver lasting trade benefits, making it a cautionary parallel for similar strategies today.

What does this imply for Trump’s future policies? By studying the Nixon era, one can anticipate potential adjustments, especially if key advisor Stephen Miran can adapt strategically. Trump’s “reciprocal tariffs” started at 10 percent, giving him room to scale down to 5–10 percent without political backlash. A tariff in that range could still support reshoring manufacturing and promoting local production. This is because U.S. manufacturing profit margins typically range from 5 to 10 percent, rising to 10–20 percent in high tech and up to 30–40 percent for firms like Apple. A 10 percent cost shift meaningfully affects margins and could incentivize a return to U.S. production.

If countries in Europe, Southeast Asia, and East Asia, especially Japan and South Korea, successfully shift Trump's trade focus to China alone, his "reciprocal tariffs" could gain broader support and be seen as legitimate from a geopolitical perspective. Once that issue is resolved, there are a few fundamental problems left in the American economy. The real uncertainty lies in Europe. Trapped in the Ukraine war and unlikely to bear the cost of postwar reconstruction even if peace is reached, Europe offers limited prospects. As a result, global capital is likely to flow back to the United States.

Looking at the competition between Europe and the U.S., Europe’s progressive governments are mounting what is effectively a last resistance. Deglobalization will inevitably hit Europe, and global markets will eventually accept this reality. As in the United States, right-wing conservatism, and likely the far right, is poised to rise and become the new mainstream across Europe.

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