Even former president Donald Trump recently expressed his wish for a dollar hegemony. This position exposes his conflicting views on the power of the U.S. dollar. The United States has long enjoyed the considerable geopolitical prestige that a strong dollar provides. Trump makes the case that too strong of a dollar is bad for U.S. manufacturing. He argues a cheaper currency could increase economic growth in this sector.
Since Trump’s inauguration in January, the dollar has lost value against other major currencies. This significant decline has caused alarm, and rightly so, over the dollar’s future stability. This decline has coincided with concerns about Trump’s tariff policies, which some economists warn could lead the country into a recession. Investors have become deeply worried about the long-term effects of these tariffs, causing many to look for more secure investment options. That flight from risk has returned markets to a state of jitters, adding another layer of uncertainty to an already fragile economy.
Trump’s view of the dollar makes no sense. Yet while he rightly calls for a strong dollar, he admits that its strength will hurt U.S. manufacturing competitiveness. His administration has faced criticism for imposing tariffs on certain imported goods — a move, Trump contends, that will help protect US industries from foreign competition. Opponents argue that these tariffs might be self-defeating, causing greater price increases and less consumer expenditure.
With the dollar still in free-fall, investors are on high alert. As a result, many have rushed for the door out of positions over concerns Trump’s protectionist approach would be detrimental to economic growth. The recent volatility has sparked an ideological war among economists and financial analysts. In doing so, they are awakening to the long term implications for the U.S. economy and its currency.
Not an easy task for the current administration. It needs to strike the right balance between maintaining a strong dollar and wanting a competitive home manufacturing base. Trump’s dual approach sets a dangerous precedent and threatens the future of U.S. trade relations and economic health.
