The Impact of Trump Presidency on US Dollar and Other Currencies

President Trump remains one of the most controversial presidents of the US, not only for the Americans but nations around the world as well. Whether it is negative or positive, you can say that his effect on things is very strong and noticeable. Take a look at the value of dollar in the recent days for example. The effect has been strong and economists are already speculating and making predictions about what’s going to happen to the US dollar in the coming years.

Trump and His Effect on US Dollar

If you look at the recent statistics, you will find that dollar has been getting stronger in the recent days. As shocking as it may sound to the readers, President Trump has not always been in the favor of a strong dollar. He has his own ways of operating and controlling the economy. According to the president, he does not want the dollar to be very strong because that impacts the exports of the country negatively. He wants America to excel in exports and put filter on imports so more and more money is generated and consumed within the country.

While the president of the US has wanted dollar to be weaker on several occasions, that does not seem to be the case. The dollar has become stronger because American economy has gotten better. when you have world’s biggest American companies pulling back their dollars from foreign countries back into the US, the economy is bound to get stronger. Take the example of Apple, the big tech giant, who’s willing to bring back billions of dollars back into the country. In addition to that, Tax Cuts and Jobs Act has also contributed to making the American economy stronger.

Such a strong dollar has a double effect on America. On the one hand, US dollar remains strong against most of the currencies of the world. On the other hand, it has now given more reasons for the big countries of the world to move away from using dollar as their invoicing unit. One must know that most of the trades taking place around the world are done in US dollars. When countries have to purchase using the currencies of other countries, they are at a risk of bankruptcy. That’s not the case when they have their own system that relies on using their own currency for imports and exports.

Strong US Dollar Is a Weak US Dollar

It is paradoxical yet true that the stronger the dollar is, the weaker it will be in the long run. The world has already been noticing trends with big countries of the world trying to come up with their own payment systems to rely on their own currencies.

The first thing that one has to understand is that a strong currency for a global economic leader such as America is not always a good thing. That’s what the US President has been trying to imply in his several statements. According to President Trump, Fed’s attempts to increase the interest rates have done damage to the country’s economy by making the dollar stronger. And how is a strong dollar a damage to the US economy? President Trump answers that as well. According to him, the interest rate hikes are making the exports of the country difficult.

The president has been doing all he can to overcome the deficit that exists in the US trade sector. He has expressed that the country needs a weak dollar because it will make other countries take more interest in buying any commodities and products that are traded in dollars. How does that happen? To make it simple, when the dollar is weak, a country has to convert fewer units of its currency to buy a particular product. On the other hand, when the dollar is strong, a country has to spend more units of currency to import a product.

What happens as a result is that countries try to avoid the trades that are consuming more of their currency units. They look for alternative trades where they have to spend less to get more. In a similar way, US exports are more attractive to the world when the dollar is weak.

To some extent, President Trump’s criticism of the Fed’s policies succeeded in bringing the value of the dollar down. However, that was only a short-lived low. The US dollar has only been going high on the DXY Index. The start of September was also positive for the US dollar on the index. In addition to that, the Fed has planned more interest rate hikes in the coming months. Those interest rate hikes will not be very pleasing for President Trump who has been openly criticizing the actions of the Fed. However, economists fully understand that the Fed operates completely independently and the remarks from the US president will not affect its strategy a lot.

So, at the year approaches its end, the dollar is expected to become even stronger than before. That’s going to hurt American exports, and push the emerging countries to look at imports from countries other than the US. Of course, trading with the US is going to hurt the emerging markets when so much of their currency will convert into dollars.

The Stage Is Set for Dodging the US Dollar

According to economists from around the world, the strong position of the US dollar and the current policies coming from Trump Presidency have set the stage for countries to move away from the dollar. Of course, the Chinese Yuan and European Euro have shown signs of weakness against the US dollar in the recent days, but that only fuels their attempts to operate in a dollar-free environment even more.

We can already see that many countries have made the moves to be less dependent on the US dollar. A little less than 10 years ago, China had taken the step to shift its economy and make it independent from the dollar. China has already completed its work on creating a system where it will not buy crude oil using its own currency. Before the launch of the system, China had to buy the same commodity in US dollars. One could argue that China was always at a quiet war with the US in terms of economic relationships.

However, the recent tariffs on imports to the US from Trump Presidency have not spared even the long-running American allies. The European Union had to face the same treatment from the US that was given to China. That treatment from the allies has forced the EU to take steps to make its economy less dollar dependent as well. The proof of that lies in the recent move that European Central Bank made in the current year. Despite Chinese Yuan being very less transparent, ECB chose Yuan as the new preferred currency for dollar-based reserves. The ECB literally converted 500 million Euros in its reserves into Chinese Yuan. While that should be a clear sign for President Trump that the allies are turning their faces away from America, it does not seem that Trump has taken notice of that.

That’s not the only blow to the US dollar because more and more banks are showing their interest in going for Chinese Yuan for their reserves and going away from the US dollar for good. Beijing has already been on this path where it is minimizing its dependence on the dollar for its reserves as much as possible. The other country walking the same path is Japan. The US government debt that foreign countries owed in 2013 was at 50%. Today, that percentage has taken a big dive and is now at 43% only.

The strict policies and the hostile attitude towards foreign countries by the Trump Presidency is hurting the US companies as well. When the countries see US as not a “friendly” ally, they will try to ditch it completely from their supply chains. They will form new trade relationships with other countries. That will result in the US companies that sell their products internationally to move out of the US as well. The effect has already started to take shape. Just recently, the proud American brand, Harley Davidson, announced that it had plans to be more active in EU and Thailand than it is in the US.

The backlash from the governments of other countries against Trump’s policies is also becoming clearer with time. EU president, Jean-Claude Juncker, was quite harsh in criticizing the fact that many EU countries were doing businesses with each other in dollars rather than using their own currencies. At the same time, Russia has been chopping away its dollar reserves at quite a pace in the recent days as well. If you look at the countries moving away from the US dollar, you will notice that the region surrounding China is most active in doing that.

Bruno Le Maire, the French finance minister, has also been very clear in his expression of moving away from the dollar as much possible. According to the finance minister, Europe should have a system in which there is no place for dollar dependence. Complete independence from the use of US dollar in the European countries is what he expects in the coming years.

America Is Too Overpowering

While the US still has the upper hand in the global economy in terms of dollar reserves and trades depending on dollar as the unit of exchange, its overpowering attitude is resulting in countries finding a way out of the network where America acts like the boss. The recent example that fits the scenario is when Trump rolled back the deal with Iran that the US would ease its sanctions if Iran stopped its nuclear experiments. The new policy from Trump is to make Iran surrender under pressure. Trump wants other countries to stop doing business with Iran. It has worked to some extent but not without the side effects.

The EU leaders have been questioning their own sovereignty in their trade matters after the overpowering attitude from America. In simple words, they want to do business with Iran but have to comply with the US sanctions because of their dependence on dollar right now. The EU leaders are not seeing the US Office of Foreign Assets Control and Treasury Department as a friend anymore. They now want to do trades without being questioned and nagged by these US entities.

The current proposals are unique per se. European leaders want to start a barter trade system with Iran wherein they could import Iranian oil to their countries in exchange of products of interest for Iran. The proposed plan wants incorporate barter trade to keep the banks as passive as possible in these trades so to avoid the pressure from the US.

According to the economists, the only thing that is preventing the dollar from being completely isolated in the current global market is that the opposition of the US is not that strong. European Union and China have their own challenges when it comes to being the leader of the global trades. China is hesitant to be open about its reserves whereas EU struggles in the spending and taxing areas due to the absence of a central entity. The recent issues of Italy have also been causing a dent in the value of Euro. In short, the dollar is not as strong as the opponents of the dollar are weak right now.

Bottom Line

What happens in the coming years is still to be unveiled. However, it is clear that the US is facing some level of isolation in the global economy. The EU and China might be slow in their efforts to move away from the US dollar, but they are definitely doing something. China’s One Belt One Road initiative is making it a strong and potential ally for many countries not only in Asia, but Europe and Africa as well. It is clear that China is taking advantage of the situation, and European Union is unhappy with America. If the trends continue, US dollar might completely vanish as a unit of exchange in global trades in the coming years.