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Trump’ s Dubious Plan To Weaken The Dollar
The plan is based on a deeply flawed understanding of the relationship between the dollar’ s global status and U. S. deindustrialization. By Kenneth Rogoff
NOW THAT U. S. PRESIDENT DONALD TRUMP’ S TARiff war is in full swing, investors around the world are asking: What’ s next on his agenda for upending the global economic order? Many are turning their attention to the so-called“ Mar-a-Lago Accord”— a plan proposed by Stephen Miran, chair of Trump’ s Council of Economic Advisers, to coordinate with America’ s trading partners to weaken the dollar.
At the heart of the plan is the notion that the dollar’ s status as the world’ s reserve currency is not a privilege but a costly burden that has played a major role in the deindustrialization of the American economy. The global demand for dollars, the argument goes, drives up its value, making U. S.-made goods more expensive than imports. That, in turn, leads to persistent trade deficits and incentivizes U. S. manufacturers to move production overseas, taking jobs with them.
Is there any truth to this narrative? The answer is both yes and no. It’ s certainly plausible that foreign investors eager to hold U. S. stocks, bonds, and real estate could generate a steady flow of capital into the United States, fueling domestic consumption and boosting demand for both tradable goods like cars and nontradables such as real estate and restaurants. Higher demand for non-tradable goods, in particular, tends to push up the dollar’ s value, making imports more attractive to American consumers, just as Miran suggests.
But this logic also overlooks crucial details. While the dollar’ s reserve-currency status drives up demand for Treasurys, it does not necessarily increase demand for all U. S. assets. Asian central banks, for example, hold trillions of dollars in Treasury bills, which they use to help stabilize their exchange rates and maintain a financial buffer in the event of a crisis. They generally avoid other types of U. S. assets, such as equities and real estate, since these do not serve the same policy objectives.
This means that if foreign countries simply need to accumu-
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