The strong-dollar mantra was developed by then-Treasury Secretary Robert Rubin in 1995. Underpinning it is the view that a robust currency reflects a healthy economy and bolsters foreign demand for U.S. debt by reducing the prospect of currency losses. While a stronger dollar helps American consumers by lowering the cost of imports, it also compounds manufacturers’ struggles by making exports less competitive.
Trump has an unlikely supporter in wanting a weaker dollar: Senator Elizabeth Warren, the Massachusetts Democrat who’s running for president. She proposes “actively managing” the dollar to counter foreign investors and central banks’ moves.
Trump and Warren’s ideas “very much could trigger a currency war,” said Fred Bergsten, an economist and author of “The Dollar’s Dilemma.”
But those who advocate that a weaker dollar is better for the U.S. say that former President Ronald Reagan’s administration was able to do it in the 1980s without destroying faith in the greenback.
In 1985, the U.S. worked with five countries, including Germany and Japan, to weaken the dollar in what was called the Plaza Accord. But such a deal is unlikely under the Trump administration, a senior White House official said.
“Our standing internationally is so weak and incoherent that the U.S. can’t pull something like this off,” said Steve Hanke, an economist at Johns Hopkins University.
Yet Trump believes that countries manipulate their exchange-rate through monetary policy, said the official, which is why the president is turning to the Fed for help.
--With assistance from Katia Dmitrieva, Jennifer Jacobs and Rich Miller.
This article was provided by Bloomberg News.