With less than seven months until E-Day and nine months until the 2025 inauguration, many of Trump’s economic advisers are hinting at their plans should the former president return to power. It may be surprising to learn that the party that has spent the last three years railing against rising prices is planning to boost the inflation that President Joe Biden sought to quell during his White House tenure and threaten the dollar’s position as the dominant global currency.
What does it mean to devalue the dollar
Currencies, like everything else, respond to supply and demand. The higher the supply of dollars, the lower its value in foreign currency. Therefore, a weaker dollar would make US exports cheaper on the world market and potentially reduce the huge US trade deficit. However, the “relative” strength of the dollar would make US-made goods more expensive for Americans and fuel the inflationary fire. In fact, the main purpose of the idea is to make imports so expensive that Americans will change their purchasing patterns in favor of previously discounted domestic products. Inflation, therefore, would not be a “problem,” rather a “feature” for Trumpland. Instead of “America first,” such a deviation could benefit many of the authoritarian leaders and regimes Trump claims to admire, as it would threaten the dollar’s reserve currency status and make it much more difficult for the United States to use economic sanctions on countries such as Iran, Russia and China. So the party complaining about 3.5% inflation proposes a plan to increase imported prices by 10% (including inputs for which companies would have to charge higher prices to cover higher costs). However, if devaluation were a strategy for prosperity, Buenos Aires would be running a Group of Seven economy. Turkey and Zimbabwe would be booming. Indonesia would give China a run for its money as Asia’s largest economy.
Weakening the dollar threatens its role as a reserve currency
At the moment, it is the relentless strength of the dollar that is making Asian currencies dizzy. The Chinese yuan, South Korean won, Indian rupee, Indonesian rupee and Malaysian ringgit are all under downward pressure. In the West, authorities pay attention to declines in the Israeli shekel, Polish zloty, South African rand and other monetary units. So, things will get much worse if Trump regains power and devalues the dollar. Such a self-inflicted mistake would give Xi Jinping a prime target in ways the Chinese leader could never have contemplated. Trump is very lucky with his opponent this year. For all of Joe Biden’s qualities, he has been missing in action when it comes to necessary supply-side reforms. That said, the choice Americans face is between an incumbent trying to tame inflation and an ex-president who would send it skyrocketing.
