President Donald Trump has known as on the U.S. Treasury and the Federal Reserve to weaken the U.S. dollar, arguing that American exports are being hurt by other international locations’ efforts to devalue their currencies.
However, some are warning that the president’s efforts might negatively impact GDP growth within the short-term, and begin a currency war that would backfire in an even stronger dollar.
“Historically, nonetheless, attempts to weaken the dollar have met with blended success and there are good reasons to believe that any intervention now would fail,” Capital Economics wrote in a notice July 8.
Over the past few weeks, Donald Trump has accused China and Europe of manipulating their currencies by easing financial policy and weakening their currencies. On July 3, Donald Trump tweeted that countries abroad have been “playing a large currency manipulation game and pumping money into their system as a way to compete with the United States.”
Trump argues that a stronger worth dollar is hurting United States exports by making them more expensive for consumers abroad, damaging the administration’s efforts to cut the trade deficit. Boosting foreign exports have been the center of Trump’s game of chicken on tariffs with long-term trade rival China, but also close neighbors Mexico and Canada.
His proposal? Get the Fed to “match” the actions of the European Central Bank and the People’s Bank of China by lowering rates of interest and taking some steam out of the U.S. dollar.
“We should take into account a variety of tools and work with other countries harmed by currency misalignment to supply a currency value that’s higher for our workers and our industries,” Warren writes in her economic plan.
However, there are two concerns: the results of intervening in currency valuation, and whether or not the Fed can be willing to help out.