Donald Trump railed against the effects of an overly strong dollar during the election campaign, warning about the damage it did to US companies’ competitiveness. Unfortunately for the president-elect, his own victory on November 8 has proven to be a catalyst for an even more expensive US currency — in part because of stimulus plans Mr Trump himself is pursuing.
America’s growing strong dollar conundrum poses a threat to Mr Trump’s vows to slash the trade deficit. Some leading analysts fear the elevated currency could prompt the incoming administration to lash out with protectionist measures as it attempts to prove it is fighting for US exporters’ interests, with China the likely focal point of early clashes.
“It looks like a slow motion train wreck to me,” said David Dollar, a former US Treasury official in China who is now at Brookings, the think-tank. The Trump plans for tax cuts and infrastructure spending were likely to help drive up both interest rates and the dollar and cause the US trade deficit to continue widening, he said. “I’m not sure it’s rational to set reducing the US trade deficit as an objective. But if you do then this policy package does not seem to get us to a more balanced trade situation.”