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Former President Trump believes the U.S. dollar is now so strong that it\u2019s interfering with American manufacturers\u2019 attempts to sell goods abroad, but a Macquarie strategist said his policies will boost the currency further.\u00a0<\/p>\n
Rising interest rates and a relatively resilient U.S. economy have helped lift the dollar in recent years. The ICE U.S. dollar index, a leading benchmark for the value of the greenback internationally, has soared nearly 13% since July 2021.<\/p>\n
\u201cWe have a big currency problem,\u201d Trump said in a recent interview<\/a> with Bloomberg Businessweek<\/em>, arguing the strong dollar has been a \u201ctremendous burden\u201d on key U.S. businesses.<\/p>\n He added that this strength now means \u201cnobody wants to buy our product because it\u2019s too expensive,\u201d and made the case that other countries try to keep their currencies \u201cweak all the time\u201d to gain an advantage in exports.<\/p>\n While the former president\u2019s message has sparked fears<\/a> among some Wall Street analysts that he may seek to artificially weaken the U.S. dollar if elected, Macquarie\u2019s global foreign exchange and rates strategist, Thierry Wizman, believes that\u2019s unlikely.<\/p>\n \u201cFormer U.S. President Donald Trump has expressed a desire for a weaker USD, but his core policies (on immigration, tariffs, taxes) point to a stronger USD,\u201d he wrote in a Monday note to clients.<\/p>\n Trump has promised to clamp down<\/a> on immigration, impose tariffs<\/a>, and institute another round of sizable tax cuts<\/a> after extending the Tax Cuts and Jobs Act of 2017. However, all of these policies would strengthen the dollar by creating inflation that forces real interest rates to rise, according to Wizman.<\/p>\n The recent surge in immigration, for example, has helped to ease the labor shortage and push down wage pressure<\/a> in recent years, helping keep inflation at bay. If Trump\u2019s anti-immigration policies lead to a reduction in migrants into the U.S., that could result in higher inflation, forcing the Fed to keep interest rates higher for longer. And because the difference in interest rates between the U.S. and other nations is so critical to the value of the dollar, higher rates will likely strengthen the U.S.\u2019s currency.<\/p>\n Similarly, studies show<\/a> that tariffs serve to increase the price of imports, and therefore, often exacerbate inflation. This can, once again, force the Fed into more hawkish policy, increasing the value of the dollar.\u00a0<\/p>\n Finally, tax cuts tend to juice the economy, boosting corporate spending and investment, which can also result in higher inflation, and as a result, a stronger dollar.<\/p>\n Wizman isn\u2019t alone in his assessment of the potential impact of Trump\u2019s core economic policies on the dollar either. AXA<\/a> Investment Managers\u2019 head of macro research, David Page, argued in a Friday report that Trump\u2019s policies, particularly tariffs, will \u201cmake Fed monetary policy easing less likely,\u201d boosting the dollar.<\/p>\n \u201cThe trade-weighted dollar has indeed tracked Trump\u2019s positive net approval ratings over recent years, suggesting the market shares a similar assessment,\u201d he noted.<\/p>\n While Trump\u2019s core economic policies, as forecast by Wall Street today, are likely to strengthen the U.S. dollar, there are potential direct policy interventions that could weaken it.\u00a0<\/p>\n Wizman noted that, if elected, Trump could pressure the Federal Reserve to cut interest rates; ask the Treasury Department to sell dollars from its reserves; ask allies to purchase their own currencies instead of the dollar in the open market; impose restrictions on overseas investments into to the U.S.; or offer tariff-free access to U.S. markets\u2014but only for countries that strengthen their own currencies.<\/p>\n Still, Wizman argued that these interventions are either unlikely to happen or unlikely to work. Trump won\u2019t be able to bully the Fed or the Treasury into changing their policies, for example, at least without disastrous impacts to the U.S. currency\u2019s status, he said.\u00a0<\/p>\n And if the former president were to attempt to curtail direct foreign investment into the U.S., that would lead to manufacturing job losses. \u201cIndeed, Trump has previously said that he favors [foreign direct investment] into the U.S. in support of job creation and higher manufacturing wages in the U.S,\u201d Wizman pointed out.<\/p>\n Finally, Trump could threaten tariffs against China in an attempt to force President Xi Jinping to devalue the yuan. \u201cBut this is more likely to backfire by getting countries to accept the tariffs and devalue their currencies, creating a vicious loop of more tariffs and more USD strength,\u201d the strategist said.<\/p>\n The only serious avenue for Trump to devalue the dollar, according to Wizman, involves offering trade concessions to emerging market countries in exchange for them increasing the value of their currencies. \u201cThis is possible, but it would\u2026lead to a lowering of tariffs, something which Trump has not yet endorsed as a possibility. Moreover, it would run counter to using the tariff system to raise revenue and defray\/offset tax cuts,\u201d Wizman wrote.<\/p>\n<\/div>\nTrump\u2019s strong dollar policies<\/h2>\n
Possible direct policy interventions<\/h2>\n
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