According to Politico, President Trump’s goal is to increase U.S. exports and reduce imports. Essentially, if a dollar buys fewer euros or Japanese yen than it currently does, it makes American products look a little cheaper and potentially more attractive to European and Japanese customers (among others). So maybe this could help US companies trying to sell their products overseas.
That is, until you consider everything. other than that If we intentionally try to weaken our national currency, which may happen, it will open up a Pandora shipping container with dire consequences.
It’s true that the dollar is unusually strong right now, but that’s probably not a reason for President Trump to be happy. Exchange rates typically reflect a country’s macroeconomic situation (among other factors such as interest rates). Thanks to a variety of factors, including relatively limited exposure to the war in Ukraine, our country has fared better than most other countries. In the words of Harvard University professor and former International Monetary Fund chief economist Kenneth Rogoff, “The U.S. economy is cracking.”
Although the relative strength of the dollar makes American products less attractive, many other countries are in or heading into recession, so our potential global customers are in any case. You may not feel as energetic. I suspect that if President Trump weakens the US economy, intentionally or not, his objective of rapidly depreciating the dollar and reducing the trade deficit may be achieved.
How would the Trump team weaken the currency if not through a recession? It’s not entirely clear. He may try to force the Federal Reserve to cut interest rates. This is something President Trump already wants to accomplish for other reasons. (For example, he has a lot of debt, so lowering his interest rate will help his own finances.) Or maybe he will bully many other countries into raising their interest rates. But that’s unlikely to happen. But if that happens, a global recession could occur.
Or it could tax the flow of foreign funds into the United States, as some senators have proposed. This is also likely to put pressure on the economy, said Maurice Obstfeld, a research fellow at the Peterson Institute for International Economics.
(Notice a theme here?)
Whatever the mechanism, a weaker dollar is probably Higher price for American consumersNot just during my summer vacation in Italy. Americans buy many imported goods, from fruit to toys to cars to furniture. They will all become more expensive as the purchasing power of the dollar declines.
So much for President Trump’s promise to beat inflation. That’s not the only problem with his plan.
Perhaps as President Trump hopes, some U.S. exports will become more competitive. But ironically, some of the U.S. industries that benefit most from a weaker dollar are not necessarily Republican allies. These include Big Tech, Hollywood, and higher education, and these sectors are highly competitive in exporting goods and/or enjoy large offshore profits that will become more valuable. sector.
There is also the risk that other countries may not support Trump’s plan. Japan’s trading partners may take a series of countermeasures to prevent their currencies from appreciating against the dollar, and Japan may also take countermeasures. In other words, we may see a sequel to the trade war that President Trump started earlier.
A global trade and currency war would likely still have negative consequences for almost everyone, including U.S. businesses and consumers.
Deliberately weakening the dollar, or attempting to weaken it, also threatens the dollar’s role as the world’s “reserve currency.” We have a stable government that makes sure we pay our bills and doesn’t do dangerous things like intentionally manipulate the value of fiat currency. As a result, the dollar is widely used in international trade, increasing demand for dollar-denominated U.S. government bonds.
The fact that the US dollar is considered a virtually risk-free store of value gives the United States some great privileges. Governments can borrow cheaply and easily to finance ever-increasing budget deficits, allowing us to continue spending more than we collect in taxes. Erosion of global use of the dollar could make it more costly for the U.S. government to continue borrowing heavily (i.e., requiring higher taxes or lower spending to cover budget shortfalls) there is a possibility).
Also, because the dollar is used so frequently in international transactions and the United States has some ability to restrict those transactions, it also has the ability to impose sanctions on countries, companies, and individuals whose actions the United States does not approve of. It may weaken.
Then again, we may need to give Trump some credit. Reducing our global influence, especially our ability to punish certain global bad actors, may be exactly what he wants.
