One of the more jaw-dropping policy ideas gaining political steam in the United States recently has President-elect Donald Trump and his team, on taking office, actively depressing the dollar with the goal of boosting U.S. export competitiveness and reining in the trade deficit. If Trump tries, will he succeed? And what could — and probably would — go wrong?
On the question of whether Trump could weaken the dollar, the answer is clearly yes. But whether doing so would enhance the competitiveness of U.S. exports and strengthen America’s trade balance is another matter.
The brute-force method of pushing down the dollar would entail leaning on the Federal Reserve to loosen monetary policy. Trump could replace Fed Chair Jerome Powell and push Congress to amend the Federal Reserve Act to compel the central bank to take marching orders from the executive branch. The dollar exchange rate would weaken dramatically, which is presumably the point.
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