President Trump is of two minds when it comes to America’s currency. He wants a strong dollar — one that is worth more compared with other currencies — because he likes its status as the world’s go-to currency for trade and transactions.
On the other hand, he also wants a weak dollar — one that is worth less in comparison — because that makes American goods cheaper to buy abroad, which could boost manufacturing at home.
Many things affect the strength of a currency, such as how much the economy is growing. But a president can also steer the dollar’s value more directly. He could drive up the value of a foreign currency by ordering the Treasury Department to buy more of it, for instance. Or he could pressure other nations to revalue their own currencies or buy more American goods by threatening to impose tariffs on their imports.
Both Trump’s goals, a strong dollar and a weak dollar, have benefits. But he can’t achieve both at the same time. In today’s newsletter, I’ll explain the drawbacks and rewards of each approach.
Weakening dollar
The United States buys much more stuff than it sells — $78 billion more, as of November. Trump wants to erase that trade deficit. The hope is that by getting other countries to buy more American products, they’ll juice American manufacturing and create jobs.
One obstacle is an overpriced dollar. “We have a big currency problem,” he said last summer. “That’s a tremendous burden on our companies.” When the dollar is strong compared with another currency, American exports are more expensive for customers abroad.
Conversely, American shoppers buy more imports when the dollar is strong. A bottle of Mexican tequila would have sold for $30 last year, when the dollar was weaker. Since then, the dollar’s value has risen. Today that same bottle would cost just $25.
To reverse the flow of goods into the country, Trump vows to impose tariffs. The latest plan is to put a 25 percent tax on Mexican and Canadian imports, and a 10 percent tax on Chinese imports. The goal is to get Americans to buy more homegrown stuff. (Trump also says it’s to stop the flow of migrants and fentanyl into the country.)
The problem with this strategy is that tariffs can strengthen the dollar. If it’s suddenly much more expensive to buy a bottle of Mexican tequila, demand for that product (and everything else from Mexico) falls, weakening the peso in comparison with the dollar.
Tariffs would also lift prices in the United States, which could prompt the Federal Reserve to raise interest rates. That means higher returns for foreign investors, which once again makes the dollar more attractive.
Trump’s tariff threats also create uncertainty, which drives people to look for a stable currency and a safe place (such as the United States, which has the world’s largest economy and one of the best-performing ones) to keep their money. The result? An even stronger dollar.
Strengthening the dollar
The dollar’s status as the world’s principal reserve currency makes it particularly valuable. It is what businesses, banks and people most often use to price goods and settle accounts, no matter where they are. Every country uses it for trade and transactions. That drives up its value, which makes American exports more expensive.
Such status, though, also confers prestige and privileges. The U.S. government, for instance, borrows money by selling Treasury bonds. Because there is so much demand for dollars, the United States doesn’t have to pay as much interest. That lowers its borrowing costs — helpful for a government that is $36 trillion in debt.
Being the world’s main reserve currency also bestows unique power. Only American banks can handle dollar transactions. That gives Washington enormous leverage. After the invasion of Ukraine, it barred Russia from using dollars to do business. That made Russia’s dealings with other countries much more costly and cumbersome.
Washington has additional leverage because other governments and central banks keep dollars in their storehouses so they can conduct trade. That was why the United States was in a position to freeze dollars that belong to Russia’s Central Bank.
Trump clearly likes the dollar’s special status. When a few nations — Brazil, Russia, India, China and South Africa — recently resurfaced the possibility of creating a new reserve currency, Trump quickly spit out a warning to anyone who might challenge “the mighty U.S. Dollar.”
The bottom line
At the moment, at least, the dollar’s status is secure. America’s economic strength and its easy-to-buy — and sell — U.S. Treasury bonds are unmatched.
Trump can still take steps to weaken the dollar. The problem is that most economists think his proposals — like activating tariffs — would backfire.
Lives Lived: Carol Downer was a leader in the feminist women’s health movement who opened clinics, worked to educate women about their reproductive health and promoted an abortion technique she felt was safe enough for laypeople. She died at 91.
SPORTS
N.F.L.: The Eagles and Chiefs are set for a Super Bowl rematch. Kansas City beat Buffalo, 32-29, in the A.F.C. title game. Philadelphia beat the Commanders, 55-23, in the N.F.C. championship.
W.N.B.A.: The Seattle Storm are sending the star guard Jewell Loyd to the Las Vegas Aces.
College football: Penn State hired Ohio State’s Jim Knowles as defensive coordinator, days after Knowles helped the Buckeyes win the national championship.
ARTS AND IDEAS
This weekend, Scots celebrated Burns Night, a holiday honoring the 18th-century poet Robert Burns. The centerpiece of the celebration is haggis, a dish of boiled sheep innards, oatmeal and spices. The U.S. bans the import of traditional haggis, driving some Scottish Americans to the black market. One Scottish manufacturer is trying to give them a legal option.