The serious contradiction in Trump’s views on the dollar
Regardless of what China does, experts say that Trump’s other policies could lead to a stronger dollar.
Among Trump’s biggest proposals are plans to cut taxes and spend more on infrastructure, plans that economists say would boost growth. But since the economy is already relatively strong, these measures would also translate into inflation. To head off inflation, the Federal Reserve would likely raise interest rates. These higher rates of return attract more international investors to buy the dollar to invest in the U.S., which in turn bids up the dollar’s price.
Trade measures that Trump has proposed, like tariffs or a border adjustment tax, could also strengthen the dollar, economists said. In the short term, the prospect of a trade war may unsettle markets and lead to flight to the safest asset in the world — dollar-denominated Treasury bonds, bidding them up.
.. “Ironically, the policies being advocated by Trump are likely to make the problem worse. The tax cuts (and possible spending increases), enacted at a time of full employment, will result in higher interest rates and this will boost the dollar,”
.. Furthermore, economists emphasized that the value of the dollar is not in itself a policy goal – but rather, the inevitable outcome of other factors, including the strength of the U.S. economy and global investment patterns.
“We don’t set the value of the dollar… it’s just a reflection of the goal of having a stronger economy, a better economy, a more dynamic economy, one that attracts global capital,” said Mark Zandi, chief economist at Moody’s Analytics. “[Trump] has very little control over the value of the dollar other than his policies that affect growth, and at the end of the day you want a strong economy and a strong dollar.”
.. Of course, if Trump did succeed in engineering a drop in the value of the dollar, he would be accomplishing something for which he has frequently criticized other economies. “The irony here is that we’re accusing other nations of manipulating their currencies, but if we want to solve that problem we’re going to have to end up doing the same thing,” says Zandi.