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As the dust begins to settle down on President Donald Trump’s latest tariffs, speculation is growing over his next move. With the dollar as the world’s reserve currency, Trump has powerful tools to pressure allies—credit access, dollar funding, and payment systems, which may be wielded as powerful weapons to subject compliance from foes and allies together.
Deploying these weapons would carry major risks for the U.S. economy and could backfire, but some experts warn they remain on the table if tariffs fail to cut the trade deficit. A weakening US dollar can have wide-ranging effects across global markets, businesses, and consumers. When the dollar loses value against other currencies, imported goods become more expensive for American consumers, increasing the cost of electronics, automobiles, and household products. Inflationary pressures may also rise as businesses pass on higher costs, eroding purchasing power.
On the other hand, a weaker dollar benefits US exporters by making American goods and services more affordable for foreign buyers. This can boost demand for US-made products, potentially leading to increased revenues for companies with international markets. Sectors like manufacturing, agriculture, and tourism often see gains as foreign customers find US goods and destinations more cost-effective.
“I could well imagine Trump getting frustrated and trying to implement wacky ideas, even if the logic isn’t there,” Barry Eichengreen, economics professor at UC Berkeley, told Reuters.
The administration’s apparent goal is to weaken the dollar to rebalance trade, potentially through a Mar-a-Lago Accord—a nod to the 1985 Plaza Accord and Trump’s Florida resort.
Stephen Miran, a Trump adviser, has suggested the U.S. could pressure foreign central banks to strengthen their currencies by leveraging tariffs and security commitments. But analysts say such a deal is unlikely, as higher interest rates would risk recession in Europe and Japan, and China needs a weaker yuan to revive growth.
If currency talks fail, Trump could take more extreme measures, such as restricting foreign access to dollar liquidity. Cutting off Federal Reserve swap lines—vital for global banks in times of crisis—could roil financial markets and hit European, Japanese, and British lenders hardest. Investors and financial markets also react to a weakening dollar in various ways.
US-based investors with holdings in foreign assets may see gains as those investments appreciate in dollar terms. Conversely, foreign investors holding US assets could experience lower returns if the dollar depreciates. The currency’s decline may also impact the bond market, as investors demand higher yields on US Treasury securities to compensate for currency risk.
Though the Fed controls these programs, Trump’s reshuffling of key financial regulators has raised concerns. “It’s no longer unthinkable that this could be used as a nuclear threat in negotiations,” said Spyros Andreopoulos of Thin Ice Macroeconomics.
But such a move could ultimately weaken the dollar’s status as the world’s dominant currency.
Commodity prices often respond significantly to dollar fluctuations. Since key commodities such as oil and gold are priced in US dollars, a weaker dollar generally pushes their prices higher. This can lead to increased costs for businesses that rely on raw materials, further fueling inflationary trends. On the flip side, commodity-producing countries may benefit from stronger revenues as the prices of their exports rise.
Another pressure point is the U.S. payments industry. Visa (V.N) and Mastercard (MA.N) process two-thirds of card transactions in the eurozone. While China and Japan have developed alternatives, Europe remains reliant on U.S. payment networks.
If the White House pressured these firms to cut off services—similar to actions taken against Russia—European consumers would be forced to rely on cash or slow bank transfers. “A hostile U.S. is a huge setback,” said Maria Demertzis of the Conference Board think tank. International trade dynamics can shift as countries reassess their economic strategies in response to currency fluctuations.
Ultimately, a weaker dollar carries both advantages and disadvantages depending on one’s perspective. While US manufacturers and exporters may enjoy competitive benefits, consumers and businesses reliant on imports could face higher costs. Investors must navigate currency risks carefully, and policymakers must balance economic growth with inflation control. The dollar’s movements influence economies worldwide, making its strength or weakness a critical factor in global financial stability.
Weakening Dollar
A weakening US dollar can have wide-ranging effects across global markets, businesses, and consumers. When the dollar loses value against other currencies, imported goods become more expensive for American consumers. Precisely because it takes more dollars to buy the same amount of foreign currency, raising the cost of imported electronics, automobiles, and everyday household products. Inflationary pressures may also increase as businesses pass higher costs on to consumers, reducing purchasing power.
On the other hand, a weaker dollar benefits US exporters by making American goods and services more affordable for foreign buyers. This can boost demand for US-made products, potentially leading to increased revenues for companies with international markets. Sectors like manufacturing, agriculture, and tourism often see gains as foreign customers find US goods and destinations more cost-effective.
Investors and financial markets also react to a weakening dollar in various ways. US-based investors with holdings in foreign assets may see gains as those investments appreciate in dollar terms. Conversely, foreign investors holding US assets could experience lower returns if the dollar depreciates. The currency’s decline may also impact the bond market, as investors demand higher yields on US Treasury securities to compensate for currency risk.
Commodity prices often respond significantly to dollar fluctuations. Since key commodities such as oil and gold are priced in US dollars, a weaker dollar generally pushes their prices higher. This can lead to increased costs for businesses that rely on raw materials, further fueling inflationary trends. On the flip side, commodity-producing countries may benefit from stronger revenues as the prices of their exports rise.
Government policies may force the Federal Reserve respond by adjusting interest rates to stabilize the currency and control inflation. Meanwhile, other central banks might intervene in currency markets to prevent excessive volatility. International trade dynamics can shift as countries reassess their economic strategies in response to currency fluctuations.
