Will We Get A Lower USD If Donald Trump Wins?

Trump’s Vision for Domestic Manufacturing

Donald Trump aims to boost domestic manufacturing by making production in the United States more attractive. A key part of his strategy involves advocating for a weaker USD to enhance the competitiveness of U.S. exports. Former President and current Republican candidate Donald Trump has made it clear that he plans to impose tariffs on vehicles manufactured in Mexico and imported into the United States. In response, Tesla has postponed its Gigafactory Mexico project, anticipating that a Trump election victory would significantly reduce the factory’s profitability. Tariffs on imported goods are intended to attract heavy industries back to the U.S.

Challenges and Realities

Achieving a weaker dollar, however, seems unlikely. During his previous term, similar goals were not met, and the current global economic landscape presents additional challenges. Trump’s focus on protectionist policies, such as tariffs and trade wars, especially with China, may not lead to a weaker dollar. Instead, these measures can create instability in emerging markets and strengthen the dollar’s position as a safe-haven currency, while potentially weakening currencies like the Chinese yuan, Australian dollar, and New Zealand dollar.

Impact on the Federal Reserve and Inflation

The ongoing trade tensions with China could lead to higher inflation, complicating the Federal Reserve’s ability to lower interest rates. Trump’s best hope for a weaker dollar may involve pressuring the Fed to cut rates more aggressively. However, it is doubtful that the central bank would sacrifice its independence, especially at this stage of the economic cycle. During his first term, the Fed resisted similar pressures, and it is unlikely to change its stance now.

Future Prospects for the USD

Despite these challenges, the broader trend of disinflation in the U.S. economy is progressing, albeit slowly. If the Fed continues on its path, there might be room for further rate cuts next year, which could naturally lead to a weaker dollar. This potential decline in the dollar’s value would be driven more by economic factors and Fed policy rather than Trump’s actions. Nonetheless, as a skilled politician, Trump would likely claim credit for any such development, regardless of the actual cause.