President Trump’s latest negotiating tactic may be to use the US dollar as a sacrificial lamb in order to lock in tariff deals.
The US Dollar Index, which measures the greenback against a basket of international currencies, initially fell today after Bloomberg reported that the White House and South Korea recently discussed exchange rate policy. The South Korean won and the Japanese yen both jumped against the US dollar as investor fears mount that Trump plans to purposely let the dollar fall against the won in order to work out a tariff deal.
For decades, the US dollar has been the dominant global currency. The mighty greenback has been the go-to for financial transactions, which enabled the US to borrow at lower interest rates, have more influence in the global economy and international bodies like the IMF, and curb inflation by keeping purchasing power high.
So why on earth would Trump want to weaken the dollar?
It’s simple: A strong dollar means that exporting is more expensive while importing consumer goods is cheaper. Trump has long argued that weaker foreign currencies give other countries an unfair exporting advantage in comparison to the US. By weakening the dollar, US goods would become cheaper for international consumers, potentially reducing the trade deficit. Trump has also argued that a weaker dollar would bring manufacturing jobs back stateside.
Yet at other times, Trump has spoken in support of a strong dollar, making his true policy aims hard to nail down. He’s not the only one keeping investors guessing: Just a few hours after covering the rising won and weaker dollar, Bloomberg reported that a person familiar with tariff negotiations stated that currency policy is not part of the discussion at this time. After that report broke, the dollar index rose into positive territory for the day.
The $ doesn’t mean what it used to
Economists argue a weaker dollar would handicap the global financial system, Wall Street, and households across the country—not to mention the geopolitical consequences.
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It’s not just an issue of markets and the financial system, either. A weaker dollar undermines national security, because it makes US sanctions on other nations less of a hammer and more like a slap on a wrist.
The threat of losing dollar dominance isn’t a new phenomenon. In the 1980s, it looked like Japan might unseat the dollar from its number one spot—and the same fears cropped up with the EU in the 2000s—but it hasn’t happened yet.
In the worst-case scenario, a weaker dollar could even exacerbate a financial crisis if US borrowing costs suddenly skyrocket and the global monetary system becomes destabilized, argued former chief economist for the IMF Ken Rogoff.
Now we know what George Washington is frowning about on the $1 bill.—LB