President Donald Trump wants the United States to increase its exports and lower its imports. Thanks to a historical decrease in the value of the US dollar, you can obtain your desire, but at a cost you may not have anticipated.
In the last six months, the dollar has decreased more than 10% compared to a basket of coins of the main business partners of the United States, something that has not done since 1973. Today, it has been at a minimum of three years.
The simplest explanation for decrease is that global investors now expect the US economy to no longer exceed the rest of the world as a result of Trump’s rates and the worsening of fiscal problems. Even with US actions that return to maximum records, the return of the actions of other countries has been even stronger. Meanwhile, it is expected that the return of loans to the United States decreases as growth slows down.
It was not supposed to be like that. Many, including members of Trump’s own cabinet, assumed that their tariff strategy would strengthen the value of the dollar in relation to foreign currencies. The thought behind this was that as American consumers began to buy less foreign goods, the coins of those other countries would weaken in relation to the dollar.
Instead, the opposite has happened. The growth prospects of the United States have weakened, partly due to Trump’s tariffs. That has made us a relatively less attractive debt for foreign investors, especially compared to loans to other countries, such as Germany and Japan, which is now expected to experience greater growth.
In theory, the advantage of a weaker US dollar is that it makes goods produced in the United States more attractive to foreign markets.
However, it is too early to say if it is happening. In anticipation of Trump’s tariffs, US companies greatly increased their imports in the first three months of this year to avoid paying new duties, and will spend weeks before the second quarter data is published.
Even then, that data probably only shows a snapback effect from the increase in the first quarter. And although Trump has announced a lot of new investments designed to reinforce US production capacity, many of those efforts are months or even years from the line.
An obvious effect of a weakening of the US dollar is that it becomes more expensive for Americans to go to popular destinations abroad, since Greenback will be less than local currencies. In essence, your money will not extend so far. Of course, such excursions tend to be taken largely by travelers who are less concerned with the increase in costs.
At home, greater concern is inflation, and lost purchasing power for US consumers and companies, which still depend largely on imports. Until the United States can produce more goods on its own, higher volumes, purchasing power will decrease as it becomes relatively more expensive to import goods from abroad.
Meanwhile, analysts say, a more alarming trend can be rooting: foreigners are no longer buying US financial assets, such as actions and bonds, at the levels that have allowed the United States to finance their commercial deficit in the first place. Although US actions have returned to record levels, relatively, they have had a lower performance to their counterparts in Europe and other places.
“It is often forgotten that the United States not only depends on the assets of foreigners, but we also depend significantly on foreign capital to support our financial markets,” said Bob Elliott, Investment Director of UNLIMITED FUNDS FINANCIAL Group. “His bonds are bought by European investors, their shares are bought by European investors, which makes you feel richer.”
A weaker dollar, he said, could weigh the will of foreign investors to buy financial assets in the United States, “which are very critical to support the balances of US households.”
“An emerging issue in asset management is the rotation of US assets to Europe while investors seek non -American exposure,” said Hubert Lam and Christiane Holstein of Bank of America in a note from the end of June. “The feeling towards US markets has become negative due to growing concerns about protectionist commercial measures, abrupt policy changes, increasing deficit and a tax proposal aimed at foreign investors in the United States.”
“As such, investors are beginning to diversify from the US. In public and private markets,” they said.
Bank of America analysts added that many international investors are reassessing their investment options to their origin markets, especially in Europe, “for the stability of politics” and the “patriotic” reasons.
On the other hand, a handful of analysts say that the fears of continuous weakness of the US dollar are exaggerated, and that American exceptionalism will finally prevail. The United States has always surpassed growth thanks to its dynamic markets and regulations in favor of growth, and Trump’s bill cementing mass tax cuts, in addition to the initial data that shows that the US labor market. UU. It remained relatively resistant in June, they have already provided a brief demonstration in the value of the dollar this week.
But assuming that American growth weakens, the Federal Reserve will probably begin to reduce interest rates, which makes the United States financial assets less attractive to external investors. That will cause the dollar value to decrease even more, which makes it even more expensive to buy products abroad.
“It is a fatality loop,” said Danny Dayan, investor and former coverage fund manager.
“Until now, inflation data has been quite benign,” said Dayan. “But we know that tariffs will increase prices to some extent.” A weakening dollar will only contribute to accelerating price growth, he said.
