Trump trade advisers plot dollar devaluation
Advisers close to the former president — particularly his former trade chief Robert Lighthizer — are considering policies that would weaken the dollar relative to other currencies, which could juice U.S. exports but also fuel inflation.
Economic advisers close to former President Donald Trump are actively debating ways to devalue the U.S. dollar if he’s elected to a second term — a dramatic move that could boost U.S. exports but also reignite inflation and threaten the dollar’s position as the world’s dominant currency.
The idea is being discussed by former trade chief Robert Lighthizer — a potential Treasury secretary pick for Trump and the architect of the former president’s bruising tariff campaign against China — and policy advisers allied with him, according to three former Trump administration officials granted anonymity to discuss confidential policy plans.
Purposely devaluing the U.S. dollar by pressing other countries to alter their own currency values would represent the most aggressive proposal yet in Trump’s attempts to reshape global trade. The potential moves would go beyond the tariffs of Trump’s first term and the expansive industrial subsidies for clean energy enacted by President Joe Biden. A weaker dollar would make U.S. exports cheaper on the world market and potentially reduce the U.S.’ yawning trade deficit.
“Currency revaluation is likely to be a priority for some members of a potential second Trump administration, mainly because of the viewpoint that [an overvalued dollar] contributes to the trade deficit,” said one former Trump administration official, adding that Lighthizer and his team are the primary advocates for the approach.
But weakening the dollar could have other far-reaching consequences, from sending consumer prices for imported products soaring, to inviting retaliation from other countries and threatening the dollar’s role as world reserve currency, which would undermine U.S. sanctions on adversaries like Iran and Russia.
The potential policy shift during a second Trump term could further fragment the global economy — a post-pandemic trend top finance officials are already grappling with as they gather in Washington this week for the yearly Spring Meetings of the International Monetary Fund and World Bank.
Each of the former officials stressed that all of the “nuances” of the currency policies are not worked out yet, and could shift before or after the election. Among other things, Lighthizer is considering ways to weaken the dollar unilaterally or through negotiations with foreign nations using the threat of tariffs, the former officials said.
Lighthizer — one of the few Cabinet members to survive Trump’s full first term — retains significant influence on the former president’s trade and economic policies from his post as the trade chief at the America First Policy Institute, a think tank set up to devise policies for a second Trump administration.
Former President Donald Trump’s first administration dabbled in currency policy back in 2019 by taking the rare step of designating China a currency manipulator. | Joe Lamberti/AP
But such efforts would face stiff opposition from Wall Street and its supporters in Washington because a weaker dollar could make assets based on the currency less valuable. Should Trump tap one of the finance executives he’s also considering to lead the Treasury Department, it’s much less likely he would pursue currency devaluation.
“This would only happen if Bob [Lighthizer] was the Treasury secretary,” a second former Trump administration economic official said.
Trump’s first administration dabbled in currency policy back in 2019 by taking the rare step of designating China a currency manipulator, meaning it was unfairly devaluing its currency, the yuan, to make its exports cheaper and gain an advantage in global trade. But that designation took place after Trump had already imposed tariffs on the Chinese economy, and his White House never went further to address the currency imbalance with policies like the ones that Lighthizer is considering today. Biden did not renew China’s designation as a currency manipulator when he took office.
The former president’s allies in Congress say they would not be surprised if a new Trump administration — particularly with Lighthizer in a position of influence — tries to do more.
“The perspective that I know [Lighthizer] brings is that when countries like China manipulate their currency, we should address that,” said Sen. Bill Hagerty (R-Tenn.), who was ambassador to Japan under Trump and worked closely with Lighthizer. “That sort of inherent unfairness is what Bob was constantly talking about, and I respect his position.”
Lighthizer declined to comment, and the Trump campaign didn’t respond to a request for comment. But the former trade adviser endorses the idea of dollar devaluation in his 2023 book, No Trade Is Free, writing that it is “clear” that the dollar is “well overvalued” and that the U.S. could make a number of moves to correct that imbalance.
Lighthizer “frequently” brought up currency devaluation during Trump’s first term, said one former administration official with knowledge of the discussions, as did Trump economic adviser Peter Navarro. But they faced opposition from Wall Street-aligned officials like Treasury Secretary Steven Mnuchin and former National Economic Council Chair Gary Cohn, and the idea never got off the ground. Trump even reportedly squashed a dollar devaluation proposal from Navarro during a White House meeting, POLITICO reported in 2019.
“Lighthizer brought that up all the time because he felt like tariffs weren’t enough to achieve the objective” of rebalancing trade with the rest of the world, said one of the former Trump administration officials. “Mnuchin didn’t want to do it.”
Mnuchin is not alone. Wall Street banks and large U.S. retailers would also oppose efforts to weaken the U.S. dollar, arguing it would hurt U.S. consumers and drive up already problematic inflation. Other corporate actors worry about the ripple effects if the U.S. government moves into currency markets aggressively, concerned it could spark a global trade conflict.
Lighthizer’s ideal situation is to try to strike a grand bargain with foreign governments on currency, similar to the Plaza Accords struck by the Reagan administration in 1985 that weakened the dollar relative to the Japanese yen and European currencies. | Susan Walsh/AP
The
ultimate effects of an “orderly and durable devaluation” of the dollar
would be “uncertain” for American business, said Jake Colvin, president
of the National Foreign Trade Council, which represents dozens of the
largest U.S. companies. But, he added, “there is the additional risk
that pursuit of a weaker dollar could spark a number of unintended
consequences including inflationary global currency and trade wars.”
“Sanction effectiveness depends on the U.S. having a world reserve currency,” said the first former Trump administration official, “and so I think there’s a clear tension there between two objectives — one of reducing the trade deficit and two of ensuring that there’s sanctions effectiveness.”
In theory, dollar devaluation could happen through multiple avenues. Lighthizer’s ideal situation, as outlined in his 2023 book, is to try to strike a grand bargain with foreign governments on currency, similar to the Plaza Accords struck by the Reagan administration in 1985 that weakened the dollar relative to the Japanese yen and European currencies.
It’s “very clear” that such a pact will be “an objective of folks like Lighthizer” if they retake the White House, said the former Trump administration official.
When the Plaza Accords were negotiated in the 1980s, the implicit threat of tariffs from the U.S. government — then, pushed by Democratic members of Congress — helped push foreign governments to renegotiate their exchange rates.
World governments should expect the tariff threat to be more explicit if Lighthizer is empowered in a future Trump administration, said the former officials with knowledge of the plans, noting that Lighthizer endorses the idea in his book, saying that it’s “hard to believe” other nations would have agreed to the Plaza Accord “if they had not been concerned about the possibility that Congress would raise tariffs.” The administration could even impose tariffs preemptively and then offer currency negotiations as a way to get the duties reduced, the former officials added.
Short of a multilateral agreement, the Trump administration could use the threat of tariffs to force individual countries — especially China — to the table for bilateral currency negotiations, said the former officials. One legal tool that’s been floated is Section 122 of the Trade Act of 1974, which authorizes tariffs of up to 15 percent against countries that have “large and serious” trade surpluses with the U.S.
The Trump administration could also impose across-the-board tariffs on imports, making them more expensive for U.S. consumers, the former officials said. Trump is considering a 10 percent universal import tariff, the former administration officials said, and one result of that policy could be to make the dollar weaker relative to other currencies.
But even economists that support a currency revaluation stress that those approaches have drawbacks — even from the perspective of reducing the trade deficit, one of Lighthizer’s clear goals. Unless there is a multilateral grand bargain like the Plaza Accords — which even Lighthizer’s allies acknowledge will be difficult — trading partners could negate efforts to weaken the dollar by cutting their own interest rates, imposing their own tariffs or subsidizing their domestic producers, all of which could undermine the effect of U.S. policy shifts.
“One of the problems with many of these solutions is that countries that are determined to implement mercantilist policies can get around the solutions very quickly,” said Michael Pettis, a Beijing-based economist influential among economic advisers to both Trump and Biden. “It’s the countries that don’t ‘cheat’ that pay the cost.”