High Tariffs And Weak Dollar Are No Way To Make America Great Again
As we’ve noted many times, President Trump’s first year was a rousing success when it comes to economic policy. But one new troubling exception has recently emerged: The Trump administration’s advocacy of a weaker dollar and trade protection. It’s a big mistake.
What concerns us is that the pace has picked up since the start of this year, with the dollar falling more than 3% since January 1 as talk of more trade protection for the U.S. economy gathers steam. More importantly, the Trump administration has all but announced an explicit policy goal of having a weaker dollar.
Here’s Treasury Secretary Steve Mnuchin, speaking with reporters at the Davos World Economic Forum meeting: “Obviously, a weaker dollar is good for us as it relates to trade and opportunities.”
“Longer term,” Mnuchin adds, “the strength of the dollar is a reflection of the strength of the U.S. economy and the fact that it is and will continue to be the primary currency in terms of the reserve currency.”
OK, so which is it? If the U.S. economy is getting stronger as Trump and Mnuchin continually reassure us it is — and, yes, we believe it — why do we need a weaker dollar? Why is it “good for us,” as Mnuchin says?
The answer is, it isn’t. A weaker dollar means that import prices must by necessity rise, and competition must fall. So consumers will buy more U.S. goods than foreign goods, due to the weaker dollar and decreased competition.
It’s one thing if Americans buy American-made goods because they’re better and cheaper. Quite another if they’re buying U.S. goods because a decline in the value of the dollar brought about by a government policy has made domestic-made goods cheaper than their foreign-made competitors.