Republican Presidential and Vice Presidential Candidates
"Strong Dollar, Disaster for US Manufacturers"
Dollar Weakening Policy if Entering Baegakgwan
Experts Warn of "Inflation Rekindling" Concerns
Following the so-called ‘Trump assassination attempt incident,’ the probability of former President Donald Trump winning the presidential election has sharply increased, raising prospects that the status of the dollar as the world’s key currency could change if the Trump administration takes office. This is because Trump, a ‘dollar bear,’ is expected to fully implement related policies upon entering the White House. Experts are concerned that Trump-style dollar weakness could fuel inflation and even cause stagflation (economic stagnation amid rising prices).
The New York Times (NYT) reported on the 16th (local time) that Trump, the Republican presidential candidate, and his running mate, Senator JD Vance, hold the view that a strong dollar harms domestic manufacturers, and if they enter the White House next year, they will consider ways to lower the dollar’s value.
The fact that these Republican presidential and vice-presidential candidates are dollar bears is evident from various statements. In 2019, while in office, former President Trump said, “You might think as president I would be thrilled with a very strong dollar, but I don’t think so,” adding, “American companies like Caterpillar and Boeing are struggling to compete.” Regarding the sharp rise in the dollar’s value against the yen last April, he also called it a “disaster for American companies.” Vice-presidential candidate JD Vance stated at a Senate hearing last year that “a strong dollar may be a subsidy for American consumers, but it is a tax on American manufacturers.”
The strong dollar phenomenon continues globally. In particular, this trend has been reinforced as expectations for the Federal Reserve’s (Fed) number of interest rate cuts this year have decreased from six times to three times, then to once. According to the Congressional Research Service (CRS), about 60% of global central banks’ foreign exchange reserves are held in dollars, solidifying the dollar’s status as the world’s key currency.
The NYT suggested that the Trump administration might appoint a Fed chairperson who would allow the Fed to print more dollars or lower interest rates. It also analyzed that the dollar could be weakened through selling dollars and buying foreign currencies. This would contradict various policies the U.S. has implemented since the 1990s to maintain a strong dollar.
Former President Trump’s dollar weakness plan may seem at odds with his campaign slogan ‘MAGA (Make America Great Again),’ but it aligns in context with goals such as reviving domestic manufacturing and reducing the trade deficit.
If former President Trump pursues a dollar-weakening policy after re-election, there are forecasts that inflation, which has been calming down in conjunction with his import tariff increase policy, could reignite. Mark Sobel, chairman of the Official Monetary and Financial Institutions Forum (OMFIF), expressed concern that “depreciation due to dollar weakness and tariff increase policies will exacerbate inflation.”
Former U.S. Treasury Secretary Lawrence Summers warned the NYT that moves to devalue the dollar “could lead to stagflation.”
Some speculate that Trump’s dollar weakness may not be realized because it conflicts with his tax cut plans. Brad Setser, a researcher at the Council on Foreign Relations, pointed out, “Trump’s proposed tax cuts would expand the fiscal deficit and raise interest rates, supporting the dollar,” adding, “At the same time, his trade agenda is likely to encourage other countries to weaken their currencies in response to tariffs.”
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
