Weak Dollar Wishes Are Scary When Granted

Donald Trump’s economic policy is not going according to plan. If you need more proof than the volatility in stocks, look no further than the depreciation of the dollar. While some in Trump’s orbit may have occasionally fantasized about a weaker greenback to boost domestic industry, it was never, ever supposed to happen like this — an abrupt slide at the worst possible time.

Weak-dollar Trumpism is perhaps best associated nowadays with Stephen Miran, Trump’s chair of the Council of Economic Advisers. In a speech to the Hudson Institute last week, Miran said that the dollar’s special status in global finance has “caused persistent currency distortions and contributed, along with other countries’ unfair barriers to trade, to unsustainable trade deficits.” (His diagnosis isn’t wrong, though I think it pays short shrift to the considerable benefits that accrue from the greenback’s reserve-currency status, which I’ll return to later.) Trump himself has flip-flopped about the dollar. During his first term, he grumbled about Chinese and European currency weakness and said that the US should match their tactics. Conversely, he’s also recently threatened to punish countries that move away from dollar-based trade.

But what no one wanted — and certainly not Miran — was a flash devaluation that drove fear into the hearts of market participants and could potentially exacerbate inflation and the fiscal deficit.