Trump Wants a Weaker Dollar. Getting One Isn’t So Easy.

President Trump has made no secret of his frustration that the United States dollar has strengthened
against other currencies.

The trade war between Washington and Beijing took an unexpected turn this week as China let
its currency drop sharplyand the United States responded by officially designating the country a currency
manipulator.

The confrontation underscored the Trump administration’s focus on weakness in foreign currencies —
and the corresponding strength of the dollar — as a drag on the American economy.

Now, investors are gaming out the prospect that the United States could actively intervene in the financial
markets, in a significant break from a decades-long commitment to free-floating currencies.

“It’s a big deal because I think it would mark a new sort of phase in how the U.S. approaches the
international economy,” said Michael Feroli, chief United States economist with JPMorgan Chase.

On Thursday, the president again publicly expressed displeasure at the relative strength of the dollar,
describing it as a drag on American industrial exports and the result of Federal Reserve monetary policy.

But while the president might want a weaker dollar, engineering one is complicated. Here’s the context
you need to understand the United States’ changing approach to the dollar.

Why would the U.S. benefit from a weaker dollar?

A weaker currency makes a country’s exports cheaper for buyers overseas, giving a country a
competitive advantage. For years, an artificially weak renminbi underpinned China’s growth as a
manufacturing base for the rest of the world.

The Trump administration’s tariffs on imports of Chinese-made goods are meant to raise the price of
those products once they land in the United States, discouraging Americans from buying them.

But one way for China to respond is to weaken the renminbi and undermine the impact of those tariffs by
making those products cheaper.

That’s why when China allowed its closely controlled renminbi to depreciate sharply against the dollar on
Monday, it was taken as a sign that the trade war between the United States and China was getting
worse.

The currency has since strengthened, easing this tension somewhat, but China isn’t the only trading
partner the president has a problem with.

For instance, in June, after the European Central Bank said it might restart stimulus programs to bolster
the economy, Mr. Trump accused it of pushing down the value of the euro, “making it unfairly easier for
them to compete against the USA.”

“They have been getting away with this for years, along with China and others,” he said on Twitter.

A weaker dollar has other benefits. For instance, it could also bolster corporate earnings. Roughly 40
percent of the revenue of the biggest American companies now comes from overseas, and a weaker
dollar means those foreign sales make a bigger contribution to the bottom line. Those higher earnings
can help give the stock market a lift.

None of this is a secret. But in the past, governments have shied away from weakening their currencies,
in part because they were afraid it would also lead to an ugly bout of inflation, which was traditionally
viewed as the big risk of a weak currency. These days, inflation around the world is incredibly low and
shows little sign of rising.

“You have almost the perfect macro backdrop for policymakers to encourage currency weakness,” said
Alan Ruskin, chief international strategist at Deutsche Bank in New York.