President Trump is of two minds when it comes to the US currency. He wants a strong dollar – one that is worth more compared to other currencies – because he likes his position as a global currency for trade and transactions.
On the other hand, he also wants a weak dollar — one that is worth less in comparison — because it makes American goods cheaper to buy abroad, which could boost production at home.
Many things affect the strength of a currency, such as how much the economy is growing. However, the president can also direct the value of the dollar directly. He could increase the value of a foreign currency by ordering, for example, a department of the Treasury. Or he could pressure other nations to revalue their own currencies or buy more American goods by threatening to impose tariffs on their imports.
Both of Trump’s goals, a strong dollar and a weak dollar, have benefits. But it cannot achieve both at the same time. In today’s newsletter, I’ll explain the downsides and rewards of each approach.
Weakening of the dollar
The United States buys far more stuff than it sells – 78 billion dollars more, from November. Trump wants to delete this trade. The hope is that by getting other countries to buy more American products, they will displace American manufacturing and create jobs.
One obstacle is the overvalued dollar. “We have a big currency problem,” he he said Last summer. “It’s a huge burden on our companies.” When the dollar is strong against another currency, U.S. exports are more expensive for customers abroad.
Conversely, US shoppers buy more imports when the dollar is strong. A bottle of Mexican tequila would have sold for $30 last year when the dollar was weaker. Since then, the value of the dollar has increased. Today, that same bottle would only cost $25.
To reverse the flow of goods into the country, Trump promises to impose tariffs. The latest plan to put a 25% tax on Mexican and Canadian imports and a 10% tax on Chinese imports. The goal is to get Americans to buy more household items. (Trump also says it’s to stop the flow of migrants and fentanyl into the country.)
The problem with this strategy is that tariffs can strengthen the dollar. If it suddenly becomes much more expensive to buy a bottle of Mexican tequila, the demand for that product (and everything else from Mexico) falls, weakening the peso against the dollar.
Tariffs would also raise prices in the United States, which could prompt the Federal Reserve to raise interest rates. This means higher returns for foreign investors, which again makes the dollar more attractive.
Trump’s tariff threats also create uncertainty that forces people to seek a stable currency and a safe haven (such as the United States, which has the largest economy in the world and one of Best performance you) to keep your money. Result? An even stronger dollar.
Strengthening of the dollar
The dollar’s status as the world’s main reserve currency is particularly valuable. It’s what businesses, banks and people most often use to price goods and settle bills, no matter where they are. Every country uses it for trade and transactions. This increases its value, making American exports more expensive.
However, such status also confers prestige and privileges. For example, the US government borrows money by selling Treasury bonds. Because there is so much demand for dollars, the United States does not have to pay as much interest. This lowers the cost of borrowing – useful for a government that is $36 trillion in debt.
Being the world’s major reserve currency also confers unique power. Only US banks can handle dollar transactions. This gives Washington enormous leverage. After the invasion of Ukraine, it banned Russia from using dollars to do business. This made Russian dealings with other countries much more costly and cumbersome.
Washington has additional leverage because other governments and central banks keep dollars in their warehouses to conduct business. Therefore, the United States was able to freeze dollars that belong to the Russian central bank.
Trump clearly likes the dollar’s special status. When several nations — Brazil, Russia, India, China and South Africa — recently rediscovered the possibility of creating a new reserve currency, Trump was quick to spit out warnings to anyone who might question “The mighty US dollar.“
Bottom line
Currently, the dollar is currently safe. America’s economic power and its easy-to-buy-and-sell-US treasuries are unmatched.
Trump may still take steps to weaken the dollar. The problem is that most economists think his proposals – such as enabling tariffs – would fail.
Lives Lived: Carol Downer was a leader in the feminist health movement, opening clinics, working to educate women about their reproductive health, and promoting an abortion technique she believed was safe enough for laypeople. She died at 91.
SPORTS
NFL: Eagles and Chiefs they are ready for the Super Bowl. Kansas City defeated Buffalo, 32-29, in the AFC Title game. Philadelphia Defeat the commander55-23, in the NFC Championship.
Wnba: Storm Seattle sends star guard Jewell Loyd to the Las Vegas Aces.
College Football: Penn State hired Ohio State’s Jim Knowles as defensive coordinator, days after Knowles helped the Buckeyes win the national championship.
Art and ideas
This weekend Scots celebrated Burns Night, a holiday honoring the 18th century poet Robert Burns. The highlight of the celebration is haggis, a dish of boiled sheep’s entrails, oatmeal and spices. The US bans the import of traditional Haggis, bringing some Scottish Americans to the black market. One Scottish manufacturer trying to give them a legal option.