Trump’s Policies and Their Effect on the US Dollar

Former US President Donald Trump has frequently voiced his preference for a weaker US dollar. However, his core policies, focusing on tariffs, immigration, and taxes, are expected to strengthen the USD, according to a recent Macquarie report.

Tariffs, Immigration, and Taxes Strengthening the Dollar

Trump’s policies on tariffs and industrial regulations, along with his strict immigration stance and tax reforms, are seen as inflationary measures. These policies are likely to increase real interest rates and, consequently, bolster the dollar’s strength, Macquarie analysts highlight.

The Debate on Trump’s Policies and the Dollar

While some argue that Trump’s strategies could strengthen the USD, dollar bears counter this notion. They suggest that a rising dollar might prompt Trump to introduce new measures aimed at weakening it. Possible strategies include pressuring the Federal Reserve to cut interest rates, directing the US Treasury to sell dollars from its reserves, or restricting inbound capital investment. However, these approaches are largely impractical. Trump has indicated he would not remove Jerome Powell as Fed Chairman, and he cannot simply instruct the Treasury to sell USD, Macquarie points out.

A Potential Path for a Weaker Dollar

One viable policy option for Trump to weaken the dollar involves offering trade concessions to emerging market (EM) countries allied with the US, encouraging them to revalue their currencies against the USD. However, this would conflict with Trump’s pro-tariff agenda. Implementing such a strategy would lead to a multi-tiered trading system and necessitate reducing tariffs, an approach Trump has not yet supported.

Conclusion on the Likely Outcome for the USD

Macquarie concludes that unless Trump modifies his core policies, particularly by lowering tariffs for countries willing to adjust their currencies, he will likely have to accept a stronger USD resulting from his current strategies. This adjustment would mark a significant shift from Trump’s established “higher tariffs” framework.