Donald Trump, Trump, JD Vance, Vance(Photo: Reuters)
Alan Rappeport
17 July
Donald Trump’s selection of Ohio Senator J D Vance to be his vice-presidential nominee pairs him with a kindred spirit on trade, taxes and a tough stance on China. But it is their shared affinity for a weak dollar that could have the most sweeping implications for the US and the global economy.
In most cases, Trump likes his policies to be “strong,” but when it comes to the value of the dollar, he has long expressed a different view. Its strength, he has argued, has made it harder for US manufacturers to sell their products abroad to buyers that use weaker currencies. That’s because their money is worth so much less than the dollars that they need to make those purchases.
“As your president, one would think that I would be thrilled with our very strong dollar,” Trump said in 2019.
The dollar has been the world’s dominant currency since World War II, and central banks hold about 60 percent of their foreign exchange reserves in dollars, according to the Congressional Research Service.
The US has maintained a “strong dollar” policy since the 1990s. The US avoids taking measures to steer the strength of the dollar, and Treasury secretaries tend to argue that currency values should be determined by market forces. When countries, such as China, have acted to weaken their currencies, the US has shamed them as currency manipulators.
It is not clear how Trump would go about weakening the dollar. His Treasury Department could try to sell dollars to buy foreign currency or try to persuade the Federal Reserve to just print more dollars.
A concerted shift in policy could have reverberations for international commerce of all kinds. The depreciation of the dollar, along with Trump’s plan to increase tariffs on imports, could also reignite inflation when price increases are finally easing.
Sceptics of a strong dollar say it is responsible for making US exports too costly abroad at the expense of American workers, and seeking to devalue it aligns with the populist ethos of Trump and Mr. Vance.
At a Senate hearing last year, Vance echoed Trump’s concerns while questioning Jerome H Powell, the Federal Reserve chair. He said the dollar’s status as the reserve currency, which means it is widely held in central banks around the world and accepted for most kinds of transactions, was a subsidy for US consumers but a tax on American manufacturers. “I know the strong dollar is sort of the sacred cow of the Washington consensus, but when I survey the American economy, and I see our mass consumption of mostly useless imports on the one hand and our hollowed-out industrial base on the other hand, I wonder if the reserve currency status also has some downsides, and not just some upsides as well,” Vance said.
Powell responded by noting that the United States benefits from its reserve currency status, which makes it possible to buy goods all over the world with dollars. He also said there was not an obvious currency to replace it. The strength of the dollar has gained global attention this year as its value appreciated compared with other countries’ currencies as a result of higher interest rates. That can complicate matters for central banks around the world that are grappling with inflation, and by making American exports more expensive, it can widen the US trade deficit, which Trump loathes.
The 2024 Republican Party platform calls for keeping the dollar as the world’s reserve currency, but Trump and Vance could still try to weaken it if elected this year. Trump could try to devalue the dollar either by signaling a policy shift, appointing a new Federal Reserve chair when Powell’s term ends in 2026 who is likely to cut interest rates, or by trying to use the threat of tariffs to compel other countries to act to strengthen their own currencies.
©2024 The New York Times News Service
First Published: Jul 17 2024 | 11:20 PM IST
