The United States dollar holds the position of being the globe’s premier reserve currency. However, Donald Trump views the strong value of the greenback as a factor contributing to trade imbalances and as a significant obstacle to his vision for a manufacturing resurgence.
The US President Donald Trump appears to believe that the current robust value of the dollar is hindering American industries.
From his perspective, the United States requires a weaker currency to boost exports, revive manufacturing employment, and aid in decreasing the nation's substantial trade imbalance. However, many remain unconvinced by the straightforwardness of this reasoning.
David Lubin points out that when the US dollar is robust, it becomes less costly to purchase other currencies. Conversely, if the dollar is weaker, buying foreign currencies requires spending more dollars. As a senior research fellow at the London-based think tank Chatham House, he emphasized this concept as being primarily related to fluctuations in exchange rates during his interview with Pawonation.com.
"Lubin stated that when the dollar strengthens, U.S. imports increase since foreign products become less costly compared to locally made items." Additionally, he noted that U.S. exports decrease as they turn pricier for international buyers.
What level of authority does the President of the United States possess?
Still, bringing the dollar exchange rate down to size is incredibly complex and largely beyond the control of any single president.
According to Lubin, the value of the dollar is decided by a massive global foreign-exchange market rather than by the president or the U.S. government.
Anthony Abrahamian, an investment strategist at the U.S.-based Rothschild & Co Wealth Management firm, suggests that one factor behind the strength of the dollar over the last ten years or so is due to America’s “higher economic growth rates” relative to those of other advanced economies.
Simultaneously, the U.S. trade deficit appears to largely be a matter of "relative demand," according to Abrahamian’s statement to Pawnation.com.
"The American consumer stands as the globe's top buyer—spending more liberally compared to other places—and thus The United States is expected to bring in more goods from abroad than it sends out. ," he said.
To what extent does the US government possess authority?
Nevertheless, the US government possesses several tools at its disposal to influence both the dollar and the broader economy.
Simply put, the US Federal Reserve can reduce interest rates. Officially, the president has minimal influence over this, but previously, Trump was not hesitant to pressure the central bank’s chief.
Moreover, the Treasury might attempt to acquire foreign currencies via its Exchange Stabilization Fund. However, as stated by Abrahamian, this approach would require them to “buy substantial amounts considering the enormous scale of current currency markets, with reported daily global transactions reaching into the trillions of dollars.”
As there are more dollars circulating, their value should decrease.
Lubin contends that Trump might diminish the value of the dollar by making the U.S. seem less appealing for investments. Nonetheless, he warns that this approach is "a risky double-edged sword with uncertain outcomes," even though it seems to have occurred recently.
"For instance, Trump’s repeated reversals on tariff policies create the perception that the regulatory climate in the US has grown more unpredictable, which consequently reduces the attractiveness of the US as an investment hub," Lubin stated.
A downturn in the U.S. economy might lead to an additional decrease in the dollar’s value.
A toolkit brimming with financial instruments
Alternatively, the US could persuade—or compel—other nations to exchange their dollars for different currencies.
This kind of devaluation might seem as ambitious as aiming for the stars, yet there is a historical example known as the "Plaza Accord." This agreement was signed at the Plaza Hotel in New York City in 1985.
This singular pact united the United States, the United Kingdom, Japan, West Germany, and France—countries that were then the largest economic powers worldwide—with Germany and Japan relying on U.S. military protection for their security.
Under pressure from America, these five nations consented to collaboratively and purposefully selling their dollars, which consequently led to a decline in the value of the dollar compared to other significant global currencies.
A comparable strategy to devalue the US dollar has resurfaced under the moniker "Mar-a-Largo Pact." This concept emerged in November and is currently advocated for by Stephen Miran, who chairs Trump’s Council of Economic Advisers.
His revised proposal takes an assertive stance and proposes penalizing those who do not participate through taxation, import duties, or removing their shield under America’s protective military coverage.
Abrahamian sees big differences between 1985 and today. The Plaza Accord was more voluntary for one and talk of such an accord today is "likely to be met with resistance from policymakers and finance ministers alike."
Lubin further stated that an agreement similar to one at Mar-a-Lago is highly improbable, primarily because the principal nation across the negotiating table would be China. He believes that China would likely not hesitant about having a significantly more robust currency ," he noted.
How might a weakened U.S. dollar impact America?
This ongoing ambiguity surrounding the dollar raises significant doubts, and any attempt at manipulation could result in unforeseen outcomes.
A less strong U.S. dollar could lead to several cascading impacts, such as increasing commodity prices because these goods are predominantly traded in dollars globally. According to Lubin, American families primarily face threats from inflation, escalating costs, and growing joblessness.
And Abrahamian says that even if Trump manages to devalue the dollar, it may not actually boost American competitiveness, since prices are "not just driven by exchange rates, but by things like production costs, productivity and quality."
Ultimately, it remains uncertain whether the president will make an effort to devalue the dollar. "We should not consistently accept what Trump says at face value ," concluded Abrahamian.
Edited by: Uwe Hessler
Author: Timothy Rooks
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