As we head into tomorrow's Fed meeting, the dollar traded to a four-year low against the euro.
With Stephen Miran, Trump's top economic advisor, now on the Federal Open Market Committee, the official regime change at the Fed is underway.
Some assume this regime change includes a view toward a weaker dollar, to support trade policy.
Devaluing the dollar inflates away the debt and makes U.S. exports more competitive (both useful), but it reduces global purchasing power and real wealth (not acceptable).
The actual U.S. playbook at work is quite different.
Solutions to the debt problem: Getting the economy on a 3%+ growth path and creating new Treasury demand through regulated dollar stablecoins. On the former, better growth will drive down the debt-to-GDP. On the latter, fresh global demand for Treasuries will put downward pressure on market interest rates.
Solutions to the trade imbalance problem: Use tariffs to incentivize domestic capacity building and export competitiveness.
So, the dollar isn't the lever the Trump administration is looking to pull to solve problems.
In fact, as Miran said in his paper on restructuring global trade, tariffs don’t hit consumers if the exporting country's currency absorbs the blow (i.e. a weaker currency).
China did this in Trump's first term. They devalued the yuan almost one-for-one with the tariffs. It keeps their businesses competitive, but the hit comes to their global purchasing power and real wealth.
With this framework, realigning the world and rebalancing global trade should come with a stable, to stronger dollar (not weaker).
