Reworking the Greenback's Glory
Protectionist Measures Unyieldingly Imposed
Ever since the synergy born out of World War II, the Almighty Dollar has wielded immense power in the global financial and commercial spheres. Jimmy Jean, Mouvement Desjardins' vice-president and chief economist, explains, "The American dollar has become the currency of choice in the financial sector, as well as in international trade." This dominant position in the currency market is rooted in the unique foundations of the United States economy — a country appreciating the rule of law and offering stability historically.
The Globetrotter of Currencies
The Almighty Dollar's grip on the global economy has resulted in beneficial import costs for American enterprises over the years. The world over, its recognition and usage have attracted foreign capital like magnets. Recalling a seasoned economist, Stéphane Marion, "The abundance of foreign capital has facilitated financing at low cost for the American economy, allowing the American stock market to maintain higher multiples and the government to borrow at a reduced rate."
On the flip side, the strong currency has put a damper on U.S. exports, inevitably leading to the relocation of manufacturing activities across the globe. This shift away from the industrial economy in states like Michigan and Pennsylvania has gravely affected employment, resulting in the U.S. recording a trade deficit since 1975. You guessed it; this economic shift had a hand in Donald Trump garnering crucial votes in swing states.
Plummeting the Almighty Dollar
In an analytical report published in November 2024, Stephen Miran, a close economic advisor to the President, underlined the deleterious impacts of "undervalued foreign currencies" on the U.S. "Imbalances in trade are rooted in the persistent overvaluation of the dollar, which stifles international trade balance," he states. If Miran's proposal is to be implemented, tariffs would be among the measures adopted to force the Almighty Dollar's value to drop.
Alchemy Gone Astray
Despite its appeal to augment U.S. exports, deliberately weakening the Almighty Dollar is risky, according to Jimmy Jean. "Any manipulation of the currency that doesn’t involve the Federal Reserve, an institution tasked with maintaining the currency's stability, could backfire spectacularly," he warns. Such a policy shift is likely to heighten the costs of imported products, causing "inflationary pressures" and adding to those arising from the tariffs themselves.
Weakening the Almighty Dollar could also deter foreign capital inflows, Stéphane Marion informs us. "A sudden exodus of capital on an unprecedented scale would undermine the growth of high-tech companies, which are the backbone of the American economy," he warns.
In this new economic landscape, the U.S. might face severe challenges, but opportunities abound for the manufacturing sector, especially for luxury vehicle and specialty manufacturing segments. Some argue that this could mark the resurgence of manufacturing in America and potentially transform its place in the world economy. However, the road is fraught with twists and turns, and only time will reveal the truth.
- The analysis published in November 2024 by Stephen Miran, an economic advisor to the President, suggests that tariffs might be implemented to deliberately lower the value of the Almighty Dollar.
- Jimmy Jean, Mouvement Desjardins' vice-president and chief economist, warns that manipulating the currency without the Federal Reserve's involvement could lead to inflationary pressures and a potential exodus of foreign capital.
- In the report published by Stephen Miran, he states that imbalances in trade are rooted in the persistent overvaluation of the dollar, which stifles international trade balance.
- The deindustrialization that occurred due to U.S. trade deficits, a result of the Almighty Dollar's strength, had political implications, with Donald Trump gathering crucial votes in swing states during the 2024 election.
