Trump blames strong dollar for U.S. economy ‘going to hell’
Trump blames strong dollar for U.S. economy ‘going to hell’
Donald Trump took aim at the Biden administration’s management of the U.S. dollar in a recent interview, once again raising the possibility that, in a second term, he would push policies to weaken the American currency to boost exports.
“Our economy is going to hell. You have to see what’s going to happen with the way with the outflow of jobs, with the dollar, the way it’s situated,” he said in a Thursday interview with the local Detroit Fox affiliate.
“The dollar’s situated, that businesses are going to flee our country. The dollar is set at a very a very bad mark in terms of jobs…the dollar is set for China and Japan and other countries to do great.”
The interview follows a Politico report last month citing unnamed sources that Trump’s economic advisors are ”actively debating ways to devalue the U.S. dollar if he’s elected to a second term.”
Due to a mix of relatively robust growth of the U.S. economy and the Fed’s efforts to stamp out inflation with higher interest rates, the dollar is stronger today than at most points in the past 10 years.
A strong dollar makes U.S. exports more expensive relative to foreign alternatives, hurting domestic businesses aiming to export goods and services.
Mark Sobel, who served as a lead foreign-exchange policymaker at the Treasury Department from 2000 to 2015, argued in a recent blog post that Trump in a second term will struggle to weaken the dollar without help from the Federal Reserve.
He noted that the Fed could lower interest rates, which would lessen foreign demand for dollar-denominated assets and likely weaken the dollar relative to its peers.
That could be a tall order, however, given the Fed’s governing structure enables it to enact policies contrary to the president’s wishes and it’s deeply ingrained culture of independence.
Meanwhile, the reasons for the dollar’s strength in a free-floating market for foreign exchange are the very economic policies that Trump championed as president and has continued to advocate for on the campaign trail.
“A second Trump administration macroeconomic policy mix might be biased towards dollar strength,” Sobel wrote. “Team Trump will most likely make the case for tax cuts, raising the US deficit beyond its already excessive levels, adding to upward rate pressures.”
Sobel argued that without the help of Congress, Trump would have little power to intervene unilaterally to weaken the dollar, outside of using diplomatic pressure to encourage U.S. trade partners to take steps to strengthen their currencies.
A more sustainable path to readjusting exchange rates in line with economic fundamentals would involve instituting policies that the presumptive Republican nominee has shied away from in the past.
“The current super-charged dollar, due to big budget deficits, high rates and risk aversion, may fall on its own if growth and inflation slow,” Sobel said. ”Regardless, pursuing fiscal consolidation, cooling demand, reducing inflation and avoiding measures which exacerbate a risk-off environment would best achieve dollar softening. That does not seem to be Trump’s policy course.”