The United States dollar holds the position of being the globe’s premier reserve currency. However, Donald Trump views the strong value of this currency as the root issue for trade imbalances and a significant barrier to achieving his vision for a manufacturing resurgence.

The US President Donald Trump appears to believe that the current robust value of the dollar is hindering American industries.

From his perspective, the United States requires a depreciated dollar to boost exports, revive manufacturing employment, and aid in shrinking the nation's substantial trade imbalance. However, many remain skeptical about the straightforwardness of this reasoning.

David Lubin points out that when the US dollar is robust, it becomes less costly to purchase other currencies. Conversely, if the dollar is weaker, acquiring foreign currency requires spending more dollars. As a senior research fellow at the London-based institution Chatham House, he emphasized this concept as being primarily related to exchange rates during an interview with Sport.bangjo.co.id.

Lubin stated that when the dollar strengthens, US imports increase since foreign products become less costly compared to locally made items." He also noted that at this juncture, American exports decrease as they get pricier for international buyers.

What level of authority does the President of the United States possess?

Nevertheless, bringing the dollar exchange rate down to an acceptable level is extremely complex and largely beyond the influence of any single president.

According to Lubin, the dollar's worth is decided by an enormous international forex market rather than by the president or the U.S. government.

Anthony Abrahamian, an investment strategist at the U.S.-based Rothschild & Co Wealth Management firm, suggests that one factor behind the strength of the dollar over the last ten years or so has been the United States' "higher economic growth rates" relative to those of other developed nations.

At the same time, the US trade deficit appears to largely be a matter of "relative demand," according to Abrahamian speaking with Sport.bangjo.co.id.

"The American consumer stands as the globe's top buyer—spending more generously compared to other places—and thus The United States is expected to bring in more goods from abroad than it sends out. ," he said.

To what extent does the US government possess authority?

Nevertheless, the US government possesses several tools at its disposal to influence both the dollar and the broader economy.

Simply put, the US Federal Reserve can reduce interest rates. Officially, the president has minimal influence over this decision; however, President Trump has previously shown no hesitation in pressuring the Fed’s chairperson.

Moreover, the Treasury might attempt to acquire foreign currencies via its Exchange Stabilization Fund. However, as per Abrahamian, this approach would require them to "amass massive amounts due to the substantial scale of current currency markets, with daily global transactions allegedly reaching several trillion dollars."

As there are more dollars circulating, their value should decrease.

Lubin suggests that Trump might reduce the value of the dollar by making the U.S. seem less appealing for investors. Nonetheless, he warns that this approach is "a risky double-edged sword with uncertain outcomes," even though it may have already occurred in recent weeks.

"For instance, Trump’s repeated reversals on tariffs create the perception that the policy landscape in the US has grown more unpredictable, making the country slightly less appealing as an investment hub," according to Lubin.

A downturn in the U.S. economy might lead to an additional decrease in the dollar’s value.

A toolkit brimming with financial instruments

Another possibility is for the US to persuade—or compel—other nations to exchange their dollars for different currencies.

This kind of devaluation might seem as ambitious as aiming for the stars, yet there is a historical example known as the "Plaza Accord." This agreement was signed at the Plaza Hotel in New York City in 1985.

This singular accord united the United States, the United Kingdom, Japan, West Germany, and France—countries that then constituted the five largest economies globally—with Germany and Japan relying on U.S. military protection for their security.

Under pressure from America, these five nations consented to collaboratively and purposefully sell their dollars, which led to a gradual devaluation of the US currency compared to other significant global currencies.

A comparable strategy aimed at weakening the US dollar has resurfaced under the moniker "Mar-a-Largo Accord." This concept first emerged in November and is currently advocated for by Stephen Miran, who chairs Trump’s Council of Economic Advisers.

His updated proposal takes an assertive stance and proposes penalizing those who do not participate through taxation, import duties, or removing their access to America’s defensive shield.

Abrahamian sees big differences between 1985 and today. The Plaza Accord was more voluntary for one and talk of such an accord today is "likely to be met with resistance from policymakers and finance ministers alike."

Lubin further stated that an agreement similar to one at Mar-a-Lago is highly improbable, primarily because the principal nation across the negotiating table would be China. He believes that China would likely not consider such an arrangement favorable. hesitant about having a significantly more robust currency ," he noted.

How might a weakened U.S. dollar impact America?

This ongoing ambiguity surrounding the dollar raises significant doubts, and any efforts to manipulate it are likely to result in unforeseen outcomes.

A less strong US dollar can lead to several cascading impacts such as increasing commodity prices because these goods are predominantly traded in dollars globally. According to Lubin, American families primarily face threats from inflation, escalating costs, and growing joblessness.

And Abrahamian says that even if Trump manages to devalue the dollar, it may not actually boost American competitiveness, since prices are "not just driven by exchange rates, but by things like production costs, productivity and quality."

Ultimately, it remains uncertain whether the president will make an effort to devalue the dollar. "We should not always accept what Trump says at face value ," concluded Abrahamian.

Edited by: Uwe Hessler

Author: Timothy Rooks