THE Donald Trump It now seems convinced that the strong dollar does not favor the US industry. He estimates that a weaker currency would assist exports, resulting in an increase in processing in the medium term and reduced the US chronic deficit in their trade balance. However, many disagree with this argument or consider it over -simplified.

As David Lubin, a researcher at the London Chatam House, explains to Deutsche Welle, “when the dollar is powerful, imports of goods to the US are increasing, because imported products are cheaper than domestic, while US exports are reduced as they become more expensive.” However, the British political scientist and economist points out, it is “extremely complicated” to control the exchange rates, as this does not depend primarily on executive power.

How much power does the president have?

The “value” or rather the dollar’s exchange rate against other coins is determined in the foreign exchange markets, and not by government decisions, Lubin stresses. For his part, Anthony Abrachamian, a US investment bank analyst Rotschild & Co Wealth Management, estimates that one main reason for the dollar in the last decade is the “highest growth rates” recorded by the US economy compared to other industrial countries.

At the same time, Abrahamian tells Deutsche Welle, the US trade deficit seems to be mainly due to high demand. “The American consumer is the No. 1 consumer around the world, so today America is importing more goods than it exports,” he points out.

Of course, the US government has some levers of pressure to weaken the currency. First, the US central bank could reduce interest rates. Of course, the Central Bank is theoretically independent of political power, but in the past Donald Trump did not hesitate to put pressure on the bank’s management.

In addition, the Treasury could buy more foreign coins through the Exchange Stabilization Fund. In this case, however, Anthony Abrahamian points out, he would have to “buy huge quantities if we consider today’s sizes of the world currency market, where the daily turnover can reach a few trillions of dollars …”.

The ‘indirect’ dollar impaired

David Lubin believes Trump could weaken the dollar in another way, making the US “a less attractive destination for foreign investment”. However, he argues, “it is a double -edged knife that poses risks and the results would be extremely unpredictable.”

But this is essentially the case in recent weeks, Chatam House researcher estimates. Because “contradictory decisions on matters such as, for example, imposing duties, give the impression that there is more volatility in the US, therefore the country becomes less attractive as an investment destination.”

New “Plaza Accord” in the works?

Another alternative would be to persuade – or to force – the US other countries to reduce those foreign exchange reserves in the American currency, to sell dollars in a nutshell. Such a depreciation sounds unreal, but there is a precedent: this is the “Plaza Accord” deal signed in 1985 and was named after the Plaza Hotel in New York, where the negotiations were held.

This (the only one, to date) agreement was signed by the countries of G5 Group, namely the largest economies in the world at that time: USA, Great Britain, Japan, West Germany and France. After US pressures, US trade partners agreed to intervene directly and coordinated in foreign exchange markets by selling dollars and thereby causing a weakening of the US currency. Something similar was proposed last November by Stephen Mij, head of Donald Trump’s financial advisers. In his view, those who do not comply with US proposals should be punished, either by imposing duties and taxes or by removing them from the US defense umbrella.

However, Anthony Abrahamian sees significant differences between today’s age and 1985. First, he recalls, the Plaza Accord agreement was, at least, a voluntary character. Secondly, in a corresponding agreement today the first to sign it would be China, which is considered “unlikely”.

In addition, the deliberate dollar weakening can have unwanted side effects. For example, prices may “take off” in imported raw materials, which are often invoiced in dollars. David Lubin estimates that for American households the greatest risk would be to increase inflation and unemployment.

Finally, Anthony Abrachamian recalls that, even if Trump manages to fade the dollar “artificially”, that does not mean that he will have won the competitiveness bet. Because “prices are not determined by foreign exchange rates, but primarily by other parameters, such as production costs, productivity and quality of products.”

Curated by: Yiannis Papadimitriou