US President Donald Trump appears to believe that the strong dollar is hindering American industry. He believes that the US needs a weaker dollar to increase exports, bring back manufacturing jobs, and help reduce the country’s massive trade deficit. However, others are not convinced by this simple argument.

David Lubin explains that a strong dollar means it is relatively cheap to buy other currencies, while a weak dollar means it’s more expensive to buy other currencies. Lubin, a senior research fellow at Chatham House, told DW that it’s all about exchange rates. When the dollar is strong, US imports rise because foreign goods become cheaper relative to domestically produced goods. At the same time, US exports fall as they become more expensive.

However, getting the dollar exchange rate under control is complicated and mostly out of the hands of any president. The dollar’s value is determined by a huge global foreign-exchange market, and not the president or the US government, says Lubin. The US Federal Reserve can cut interest rates, but the president officially has little say here. The Treasury could also try to buy foreign currencies through its Exchange Stabilization Fund, but it would have to purchase huge quantities given the sheer size of today’s currency markets.

The US government does have a number of levers available to steer the dollar and the wider economy. The US could convince or force other countries to sell their dollars for other currencies. The Plaza Accord, signed in 1985, is a precedent where the US, the UK, Japan, West Germany, and France agreed to sell dollars in a cooperative and deliberate way, thus weakening the dollar relative to other major currencies. However, talk of such an accord today is likely to be met with resistance from policymakers and finance ministers alike.

Source: https://www.dw.com/en/with-us-trade-deficit-at-a-record-could-trump-strive-to-weaken-the-dollar/a-71972325?maca=en-rss-en-all-1573-rdf