American workers have known for years that something in our trade system is broken.
Factories have closed and jobs have moved overseas — not just because of bad trade deals or cheaper labor, but also because of a rigged currency game.
In an often overlooked move, President Trump’s America First trade agenda zeroed in on this problem from Day 1, when he issued an executive order directing his Treasury secretary to target unfair currency practices.
It’s a bold strategy: Combine tariffs with currency policy to finally rebalance trade. And it just might work.
Behind America’s persistent trade deficit lies an often overlooked culprit — a persistently overvalued dollar. Former Treasury Department economist Stephen Miran calls it “the root of [US] economic imbalances.”
In plain English, the US dollar has been too strong for too long, making American-made goods more expensive overseas and foreign imports cheap in our stores.
Persistent US dollar overvaluation fuels much of America’s global trade deficit by raising the price of our goods abroad. This is a big reason we’ve run trade deficits in goods year after year, hitting a record $1.2 trillion in 2024.
An overvalued dollar means US companies can offer great products and still lose out, because the currency exchange rate makes their price less competitive.
Trump recognizes this problem. His America First Trade Policy memorandum explicitly called out currency manipulation and “misalignment” as targets for action.
Why “misalignment”? Because even if a country isn’t openly cheating by devaluing its currency, the result is the same when exchange rates get out of whack.
Many currencies are clearly misaligned against the dollar, according to analyses by our organization, the Coalition for a Prosperous America.
Trump has declared an official strategy to push back on currencies that give foreign exporters an unfair advantage. In short, he’s linked trade policy with currency policy in a way no president has in decades.
It’s easy to blame China for our trade woes: China has a long history of keeping its currency cheap to boost exports.
In fact, China’s yuan is so undervalued — about 28% against the dollar — that Chinese exporters still enjoy an edge, even after paying Trump’s 25% tariffs.
But focusing on China alone misses the bigger picture. The problem is global.
For years, other countries have ridden the strong-dollar gravy train, piling up trade surpluses at America’s expense.
US companies have seen production shift not just to China but to low-wage countries like Vietnam, Thailand or Mexico — countries that either undervalue their own currencies or benefit from the dollar’s strength.
That strength is due to the popularity of US investments with global investment funds, which have channeled money into US stocks and bonds for decades, boosting the exchange value of the dollar.
For rich investors and fund managers from Argentina to London to Tokyo to the Cayman Islands, US Treasury bonds are the safest in the world, while American technology stocks are the biggest and best way to play the artificial intelligence boom.
In addition, whenever the US levies tariffs, the dollar starts to rise even further against the currencies of tariffed nations. We saw this in 2018-2019, when Trump’s China tariffs led to a rise in the value of the dollar, wiping out roughly half of the tariffs’ impact.
To make tariffs truly effective, the United States has to hold its currency stable against the nations on which they are imposed.
Our calculations suggest that the US dollar is some 20% to 25% overvalued, before considering any tariffs.
In other words, instead of $1.08 to the euro, the correct rate might be around $1.30 to the euro. Instead of 7.25 Chinese yuan to the dollar, the correct rate might be 5.8 yuan to the dollar.
At those rates, US goods become much more competitive — and foreign-produced goods less so. Think about it: An automobile made here becomes 25% more competitive on global markets, while a toy or a smartphone made in China becomes 25% less competitive in the US market.
Trump’s key economic advisers understand this. Once tariffs are accepted as an ordinary tool of economic policy (which they were for the 130 years prior to World War II), there’s a great likelihood that the president and his advisers will start talking about moving the dollar back down toward a competitive rate.
For example, if Trump or Treasury Secretary Scott Bessent publicly directed the Treasury or Federal Reserve to intervene in foreign exchange markets by selling dollars for foreign currencies, the markets would respond quickly by driving the dollar’s value down.
The combination of a competitively priced dollar on world markets and tariffs against nations that run large trade surpluses with us will deliver a huge boost to US manufacturers, workers and farmers as they compete in world markets.
It will create jobs, reduce imports, increase exports and generate investments in plants and equipment — an agenda that’s pro-worker, pro-industry and ultimately pro-growth for the nation as a whole.
Other presidents have talked about bringing jobs back to the United States. Trump may be the only one actually willing to put some skin in the game to do it.
Jeff Ferry is chief economist emeritus at the Coalition for a Prosperous America.
