Trump trade advisers plot dollar devaluation
Economic advisers close to former President Donald Trump are actively debating ways to devalue the U.S. dollar if he’s elected to a second term — a dramatic move that could boost U.S. exports but also reignite inflation and threaten the dollar’s position as the world’s dominant currency.
The idea is being discussed by former trade chief Robert Lighthizer — a potential Treasury secretary pick for Trump and the architect of the former president’s bruising tariff campaign against China — and policy advisers allied with him, according to three former Trump administration officials granted anonymity to discuss confidential policy plans.
Purposely devaluing the U.S. dollar by pressing other countries to alter their own currency values would represent the most aggressive proposal yet in Trump’s attempts to reshape global trade. The potential moves would go beyond the tariffs of Trump’s first term and the expansive industrial subsidies for clean energy enacted by President Joe Biden. A weaker dollar would make U.S. exports cheaper on the world market and potentially reduce the U.S.’ yawning trade deficit.
“Currency revaluation is likely to be a priority for some members of a potential second Trump administration, mainly because of the viewpoint that [an overvalued dollar] contributes to the trade deficit,” said one former Trump administration official, adding that Lighthizer and his team are the primary advocates for the approach.
But weakening the dollar could have other far-reaching consequences, from sending consumer prices for imported products soaring, to inviting retaliation from other countries and threatening the dollar’s role as world reserve currency, which would undermine U.S. sanctions on adversaries like Iran and Russia.
The potential policy shift during a second Trump term could further fragment the global economy — a post-pandemic trend top finance officials are already grappling with as they gather in Washington this week for the yearly Spring Meetings of the International Monetary Fund and World Bank.
Each of the former officials stressed that all of the “nuances” of the currency policies are not worked out yet, and could shift before or after the election. Among other things, Lighthizer is considering ways to weaken the dollar unilaterally or through negotiations with foreign nations using the threat of tariffs, the former officials said.
But such efforts would face stiff opposition from Wall Street and its supporters in Washington because a weaker dollar could make assets based on the currency less valuable. Should Trump tap one of the finance executives he’s also considering to lead the Treasury Department, it’s much less likely he would pursue currency devaluation.
The ultimate effects of an “orderly and durable devaluation” of the dollar would be “uncertain” for American business, said Jake Colvin, president of the National Foreign Trade Council, which represents dozens of the largest U.S. companies. But, he added, “there is the additional risk that pursuit of a weaker dollar could spark a number of unintended consequences including inflationary global currency and trade wars.”
National security hawks also worry that weakening the dollar could take the bite out of U.S. sanctions on foreign countries like Russia and Iran. Those sanctions rely on the dollar’s use as the dominant currency in world trade and finance. If the dollar was devalued enough to make other nations switch to using another currency in international transactions, the U.S. Treasury would no longer have the ability to freeze those assets, as it has done with officials in adversarial nations.
“Sanction effectiveness depends on the U.S. having a world reserve currency,” said the first former Trump administration official, “and so I think there’s a clear tension there between two objectives — one of reducing the trade deficit and two of ensuring that there’s sanctions effectiveness.”
In theory, dollar devaluation could happen through multiple avenues. Lighthizer’s ideal situation, as outlined in his 2023 book, is to try to strike a grand bargain with foreign governments on currency, similar to the Plaza Accords struck by the Reagan administration in 1985 that weakened the dollar relative to the Japanese yen and European currencies.
It’s “very clear” that such a pact will be “an objective of folks like Lighthizer” if they retake the White House, said the former Trump administration official.
When the Plaza Accords were negotiated in the 1980s, the implicit threat of tariffs from the U.S. government — then, pushed by Democratic members of Congress — helped push foreign governments to renegotiate their exchange rates.
World governments should expect the tariff threat to be more explicit if Lighthizer is empowered in a future Trump administration, said the former officials with knowledge of the plans, noting that Lighthizer endorses the idea in his book, saying that it’s “hard to believe” other nations would have agreed to the Plaza Accord “if they had not been concerned about the possibility that Congress would raise tariffs.”
The administration could even impose tariffs preemptively and then offer currency negotiations as a way to get the duties reduced, the former officials added.
Short of a multilateral agreement, the Trump administration could use the threat of tariffs to force individual countries — especially China — to the table for bilateral currency negotiations, said the former officials. One legal tool that’s been floated is Section 122 of the Trade Act of 1974, which authorizes tariffs of up to 15 percent against countries that have “large and serious” trade surpluses with the U.S.
The Trump administration could also impose across-the-board tariffs on imports, making them more expensive for U.S. consumers, the former officials said. Trump is considering a 10 percent universal import tariff, the former administration officials said, and one result of that policy could be to make the dollar weaker relative to other currencies.
But even economists that support a currency revaluation stress that those approaches have drawbacks — even from the perspective of reducing the trade deficit, one of Lighthizer’s clear goals. Unless there is a multilateral grand bargain like the Plaza Accords — which even Lighthizer’s allies acknowledge will be difficult — trading partners could negate efforts to weaken the dollar by cutting their own interest rates, imposing their own tariffs or subsidizing their domestic producers, all of which could undermine the effect of U.S. policy shifts.
“One of the problems with many of these solutions is that countries that are determined to implement mercantilist policies can get around the solutions very quickly,” said Michael Pettis, a Beijing-based economist influential among economic advisers to both Trump and Biden. “It’s the countries that don’t ‘cheat’ that pay the cost.
