Donald Trump's Pursuit of a Weaker Dollar: Economic Strategy or Geopolitical Risk?

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Donald Trump's Pursuit of a Weaker Dollar: Economic Strategy or Geopolitical Risk?

In a move that has reignited debate over U.S. economic policy, former President Donald Trump recently reiterated his desire for a weaker U.S. dollar, hailing its declining exchange rate as "great." This stance, consistent with his long-held views, reflects a belief that a devalued currency can bolster American exports and rejuvenate domestic manufacturing. However, economic analysts and foreign policy experts caution that while a weaker dollar might offer certain immediate advantages, Trump's broader approach to international relations and trade could inadvertently undermine the very global standing that underpins the dollar's enduring power.

Trump's advocacy for a weaker dollar is rooted in a straightforward economic premise: a less valuable currency makes American goods cheaper and more competitive in international markets, while simultaneously making imports more expensive. This dynamic is intended to incentivize foreign consumers to buy U.S. products and encourage American companies to invest in domestic production, ultimately aiming to shrink the trade deficit and bring back manufacturing jobs. This isn't a new fixation for Trump; he publicly lamented the dollar's strength against the Japanese yen as early as 1987, articulating a consistent vision for a more export-driven economy.

Despite his fervent belief, the ability of any U.S. president to unilaterally dictate the dollar's long-term exchange rate is limited. Economic experts, including Kenneth Rogoff, a former chief economist of the International Monetary Fund, describe such presidential aspirations as akin to "doing a rain dance." The dollar's value is influenced by a multitude of complex factors, with interest-rate policy set by the independent Federal Reserve being paramount. When borrowing costs decrease, the dollar typically weakens. This inherent power of the Fed over monetary value is precisely why Trump has often sought to exert greater control over the institution, viewing it as a lever for his economic agenda.

Historically, the U.S. dollar has enjoyed an unparalleled position as the world's dominant reserve currency since the end of World War II. Its stability and the perceived reliability of the American economy have made it the preferred currency for international trade, lending, and foreign-exchange transactions, with nearly 90 percent of global forex trades involving the dollar. This dominance has bestowed upon the United States what former French Finance Minister Valéry Giscard d’Estaing famously termed "exorbitant privilege," granting it unique advantages in borrowing, running deficits, and imposing sanctions without facing the immediate economic repercussions other nations might. The "Liberation Day" tariffs imposed in a previous administration, for instance, exemplified this privilege, yet also sparked questions about its sustainability.

While a weaker dollar might not inherently signal a loss of this dominance—indeed, many past predictions of the dollar's demise have proven premature—the greater threat emerges from the potential erosion of international trust in American stability. Economists largely agree that the euro, yen, yuan, or even cryptocurrencies like Bitcoin are not currently equipped to challenge the dollar's hegemony in the near term. However, Trump's often unpredictable foreign policy decisions, his skepticism towards long-standing global institutions like NATO and the World Health Organization, and his transactional approach to alliances have introduced a significant degree of uncertainty into global affairs. Maurice Obstfeld, another former IMF chief economist, warns that such "inner geopolitical chaos caused by Trump, and geo-economic chaos," could lead to a shrinking of the dollar's global reach and a rise in other currencies, even without a clear successor emerging.

Therefore, the core concern isn't merely the dollar's fluctuating value on currency markets. Instead, it lies in the broader implications of U.S. policies that could diminish the respect and confidence that America's allies and trading partners hold for its economic and political stability. A less dominant dollar would not only signify a shift in economic power but also serve as a potent indicator of America's waning influence on the world stage, impacting everything from trade dynamics to geopolitical leverage. The challenge for any administration is to balance domestic economic goals with the imperative of maintaining global trust and the integrity of the international financial system.

Ekhbary News Agency