Is the US dollar already being undermined?

This is not what should happen, nor what the Trump administration expected.

The theory and history affirm that, when the rates are imposed, the currency of the country that imposes on them and to a certain extent the impacts of the rates of their consumers and companies attenuates, which (despite what Trump supports) are those that actually pay the rates in the form of increased prices.

A study by the 2019 International Monetary Fund on 151 countries between 1963 and 2014 showed that the tariff increases involved appreciation of the real exchange rate. (He also demonstrated, despite what the Trump administration believes, that the rates had only a modest effect on commercial sales).

There is a simple explanation of why the US dollar should increase. Rates increase prices and therefore reduce the demand for imports, which means that there is less need for US companies to exchange dollars with imported, less dollar goods in circulation and, with less offers, higher “prices” for currency.

The fact that it has not happened could be due to a series of factors.

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One obvious would be that investors and traders believe that the United States are shooting themselves at the feet and that the damage to its economy will be greater than that of the economies that are also moving their exhibitions.

Rates lower US growth, employment and investments and will raise the inflation rate, risking stagflation or greater inflation with lower growth.

This was what the president of the Federal Reserve Board, Jerome Powell, alluded to last week when he said that the rates could have generated at least a temporarily increase in inflation, but it was also possible that it could be more persistent.

The Fed had a bruised experience with what he thought would have been the “transitory” peak in inflation due to the impact of the pandemic on the global supply chains. Four years after that US inflation has started to rise, it remains high and above the target of the Fed even if the American economy has slowed down and before the Trump rates and their negative impacts on inflation and growth affected at home.

In the past, the dollar has also strengthened during the US recessions, therefore the immediate reaction to the Trump rates and the large bets against the assembly of the dollar in the futures markets, this time there is something different.

The rates, the assault on the order of global free trade from which the United States built and encouraged (and benefited) and the commercial war that Trump started, against not only the enemies received, but the closest commercial partners, the geopolitical allies and the poorest economies in the world, could undermine the status of the dollar as a reserve currency of the world.

There could be a development element in development in the unusual response of the dollar, led by a repercussions against Trump’s actions, which underlines the vulnerability of other economies, have increased the distrust of America and have raised question marks on the long -term potential of its economy.

It does not help the fact that, even if the punitive and irrational rates regime is implemented, the Republicans in the Senate have introduced “Big Big Bill” of Trump of tax breaks and spending cuts, a bill, the non -partisan committee for a responsible federal budget would have added $ 5.8 trillion dollars to the primary deficits between 2026 and 2034 and that would be “without pressure.

The bill will not only extend the $ 4.5 trillions of dollars of tax cuts for the rich from the first term of Trump, which should expire by the end of the year, but had more than $ 1.5 trillions of dollars for the abolition of tax cuts on advice and other commitments that Trump made during the election campaign.

Rates lower US growth, employment and investments and will raise the inflation rate, risking stagflation or greater inflation with lower growth.

If added to the impact of the rates on the economy, the enormous increase in the already discouraging American debt and the burden of the deficit is taking place in the most delicate moment of the country’s history of the post -war period.

The domain of the US dollar in trade and global finance has meant that, regardless of the internal conditions or economic policies, the United States have been able to attract foreign investments in its markets and economics.

Foreign governments saw him as a safe and stable place to park their savings, investors saw him as a source of yields and the highest and less volatile companies have acquired US dollars in exchange for the goods they have sold in the largest consumption market in the world.

Now the world does not see America as sure or stable and the rates mean that the profits of US companies will decrease, as well as the need for investment capital and the market for foreign goods will be reduced.

The United States, since 1944, enjoyed what the former French finance minister, Valéry Giscard d’Estaing, once defined as an “exorbitant privilege”. It costs almost nothing to print a dollar, but other countries must provide $ US1 of goods or services to acquire one.

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This has supported a period of over 80 years in which the rest of the world has actually subsidized the economy of the United States and the living standards of its citizens. Regardless of its economic foundations, it has been able to borrow in a cheaper way, to buy goods in an economic way, exploit the dollar in the geopolitical domain and must never fear a balance of payments because the status of dollar has actually given unlimited reserves in foreign currency.

The economic strength and the stability of America revolve around the status and privileges of the dollar. Trump, its rates, the plan for enormous increases in US deficits and debt undermine the domain of the dollar and create an economic and financial crisis in the United States in the process? We could find out.

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