The Daily TLDR
Thursday, November 21, 2024
Trump's Dollar Dilemma: Devaluation or Delusion?
TLDRnewsGLOBAL, November 20, 2024
Following Trump's recent victory, the dollar's value has spiked, defying Trump and his VP's repeated calls for a weaker dollar to boost American manufacturing. The video dives into the reasons behind Trump's preference for devaluation, examining his past statements and those of his VP, JD Vance, who both consider the dollar overvalued.
While the IMF agrees that the dollar is arguably overvalued by roughly 10%, its strength stems from its status as the world's reserve currency – a safe haven for international central banks and institutions. This creates high demand, pushing up its value. Trump and Vance argue that this overvaluation makes American exports less competitive, hindering the manufacturing base and resulting in job losses.
However, the video points out a significant contradiction: many of Trump's policies, especially tariffs and tax cuts, are likely to strengthen the dollar, not weaken it. Tariffs could lead to inflation, forcing the Federal Reserve to raise interest rates, consequently increasing the dollar's value. Tax cuts would also fuel inflation by boosting disposable income. These factors, along with potential responses from countries like China, would likely counteract any efforts towards devaluation.
The video explores four theoretical ways Trump could devalue the dollar: pressuring the Federal Reserve, direct government intervention in currency markets (requiring trillions of dollars), implementing capital controls, or negotiating an international agreement similar to the 1985 Plaza Accord. Each presents significant challenges, ranging from market disruptions to undermining the dollar's reserve status. Ultimately, achieving a weaker dollar under Trump's current policy direction appears highly improbable.