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.