“Politico”: Trump advisers plan to devalue the dollar if he is elected president – Business

A re-election of Donald Trump as US president could have serious implications for the US dollar, as his former economic advisers are already making plans to devalue the greenback if he wins this autumn’s race for the White House.

According to Politico, Trump’s former trade adviser Robert Lighthizer and several political allies will seek to make American trade more competitive by purposefully weakening the dollar.

“Currency revaluation is likely to be a priority for some members of a potential second Trump administration, primarily because of the view that a stronger dollar contributes to the trade deficit,” a former Trump administration official told the publication.

Lighthizer was an influential figure in the White House during the Trump administration and the chief organizer behind the $200 billion in tariffs imposed on China in 2018. He is also rumored to be Trump’s choice for Treasury Secretary , if he wins the presidential race this fall.

Devaluation of the U.S. dollar may sound counterintuitive, but according to the Brookings Institution, it’s one of the few things Democrats and Republicans have agreed on during Trump’s tumultuous first term.

As president, Trump has constantly bemoaned the strength of the dollar and accused other countries of manipulating their currencies to gain an upper hand in world trade. He even went so far as to call on the Federal Reserve to cut interest rates to make the dollar more competitive.

But while the devaluation of the dollar may sound good on the surface, it can have unintended consequences. Experts say this may not be a so-called “golden ticket” to a stronger trade balance and a healthier economy.

In theory, a weaker dollar will make U.S. exports cheaper, increase the cost of imports and potentially reduce the trade deficit that Trump seems overly concerned about. But theory doesn’t always pay off in practice, especially when the US touts the dollar as the world’s reserve currency.

If the purpose of a devaluation of the dollar is to raise the price of imports and protect American companies, it may make domestic industries less efficient due to a lack of competition.

“Devaluation can cause inflation in the local economy as the prices of imported goods and raw materials increase. This directly affects the purchasing power and living standards of consumers,” said Dr Christina Chua, senior vice president at Singapore-based KGI Securities. . She called the devaluation a “double-edged sword” that could lead other countries to devalue their currencies to remain competitive. This can cause the so-called “currency war”.

Devaluation could also undermine the global appeal of the US dollar, which is the dominant currency in international payments and the preferred method of payment in many parts of the world.

While economists can debate the pros and cons of currency devaluation, the real question is to what extent it can be used as a weapon of trade. If Trump’s first term is any indication, a weaker dollar could be accompanied by punitive tariffs.

According to economist Peter Schiff, the biggest loser from the tariffs is the average American consumer.

During his administration, Trump downplayed the issue, saying “it would be very easy for Americans to avoid higher prices by bringing production back home where the tariffs would not apply,” Schiff said.

But the problem is that Trump “seems to believe that American firms that have relied on foreign manufacturing for decades can simply start manufacturing domestically,” he added.

Year to date, the dollar index, which measures its strength against six other major currencies (the euro, pound, Swiss franc, yen, Swedish krona and Canadian dollar), is up nearly 5% year-to-date thanks to the Federal Reserve’s dovish rhetoric of high interest rates for a longer time.

Dollar Index Chart

However, according to the International Monetary Fund, the dollar has been overvalued for much longer than just the past few months. The IMF estimates that the value of the greenback was as much as 91% above its baseline in 2023, a new record. The fund also said the dollar was outperforming its weight against other currencies due to its growing demand as a global reserve currency and greater trading in emerging markets.

While overvaluation may seem like a risk, “history also shows that the dollar tends to move in multi-year cycles,” wrote Dr. William Sterling, global strategist at Boston-based investment firm GW&K.

“Given its record high overvaluation, the risks look set for years of declines,” he said, referring to the likely weakening of the dollar in the near term.

This view is shared by Vanguard’s strategic analysts Ian Kresnak and Lucas Brandl-Cheng, who say, “a new, proprietary Vanguard model estimates that the US dollar is approximately 12% overvalued against a basket of five major currencies by 2024.” .

“Over the next decade, we estimate the likelihood of some dollar depreciation at around 75%, with a moderate decline of 1.1% on an annual basis most likely,” the two analysts wrote.