Trump's questionable plan: weaken the dollar, save industry?

Trump's questionable plan: weaken the dollar, save industry?

US President Donald Trump is pursuing a controversial plan to weaken the dollar in order to strengthen domestic industry. This plan, known as the Mar-a-Lago Accords, was designed by Stephen Miran, chairman of Trump's economic advisory council. Miran argues that the dollar's status as the world's reserve currency places a burden on the U.S. economy and contributes to deindustrialization. High demand for the dollar leads to an increase in its value, making US goods more expensive and causing trade deficits. In response to this development, many US manufacturers are moving production abroad, which in turn puts jobs at risk.

However, the relationship between the dollar and the trade deficit is more complex than Miran makes it out to be. Foreign investors hold U.S. government bonds to stabilize their exchange rates, but often avoid investing in other U.S. assets. Historically, the dollar had no adverse impact on the U.S. current account as a reserve currency in the 1960s to 1970s. The causes of the current account deficit are also diverse; they depend, among other things, on the relationship between national savings and investments.

The challenges of the Mar-a-Lago agreement

In 2024, the US budget deficit was 6.4% of GDP, while the current account deficit was less than 4%. Miran's plan is seen as flawed because the dollar is just one of many factors contributing to trade deficits. Closing the budget deficit could be easier than a trade war, but it will require political action in Congress. Despite the high level of automation, the strength of the US economy remains an attraction for international investors.

Criticism of Trump's approach is reinforced by current economic trends and global political developments. China, for example, is accused of distorting global capital allocation through public policies that create excessive savings. The lack of social security and underdeveloped credit and savings instruments in China are forcing households to save more, while corporate profits benefit from falling labor compensation.

Global implications and future prospects

The Chinese government's strategies to influence capital allocation through state-owned enterprises and public subsidies have significant impacts on international trade and the U.S. economy. In addition, US trade policy is often approached with the doctrine of 'reciprocity', which aims to apply the tariffs of trading partners to US products in mirror image. It is argued that specific tariffs depending on the elasticity of demand for imported goods are necessary in order not to increase consumer prices.

In the current multipolar world, the erosion of the dollar as the primary reserve currency could run counter to U.S. interests in the long term and destabilize the global financial market. The protagonists of new tariff measures also see these tariffs as a means of controlling foreign exports and reducing the tax burden on US citizens. However, this approach could be misleading and raises the question of whether the deliberate weakening of the dollar will actually strengthen US industry or whether it will prove self-defeating.

Overall, it remains to be seen how the Mar-a-Lago agreement and the associated economic policies will affect the US economy and the international trade situation. Challenges in the global arena and the changing economic environment require innovative responses and sustainable policies.