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Amid the noise of belligerent rhetoric, three priorities for Trump 2.0 have crystallised. He wants to:
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Bring manufacturing home – a prerequisite to restoring the output capacity of the domestic ‘defence’ industry,
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Roll back the government’s economic footprint,
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Stop US Inc. from living beyond its means.
Moreover, he aims to achieve these goals while minimising pain – and thus criticism.
With unemployment low and inflationary pressures lingering, near-term output expansion faces hard limits – even with added demand. Fiscal and current account balancing, then, must rely heavily on spending cuts.
The elimination of European military bases would, on the surface, be a relatively pain-free starting point – at least for the average US voter. However, other options appear far less palatable. Enter the floated plan to weaken the dollar.
A weaker dollar would rebalance the current account by lifting exports and curbing consumption – with the critical twist that higher prices (not lower incomes) do the heavy lifting on the latter.
Trump’s calculus for electoral pain seems reductively tied to avoiding spikes in oil prices and long bond yields. Absent these, it’s hard to imagine he wouldn’t welcome a weaker dollar. The bigger question, perhaps, isn’t whether he wants it, but what he might do to make it happen.
Demand for the dollar is subject to competing market whims and may feel largely beyond his control. Supply, on the other hand, is the Fed’s lever to pull… unless Trump decides to yank it back.
