columnist Jeff Ferry. “American workers have known for years that something in our trade system is broken.”
Factories have shut down and jobs have moved overseas, not just because of bad trade deals or cheaper labor but due to a “rigged currency game.” From the beginning, Trump’s “America First” trade agenda targeted unfair currency practices. “President Trump’s America First trade agenda zeroed in on this problem from Day 1, when he issued an executive order directing his Treasury secretary to target unfair currency practices.”
Trump’s Tariffs and Dollar Strategy
“It’s a bold strategy: Combine tariffs with currency policy to finally rebalance trade. And it just might work.”
The real issue behind America’s trade deficit is “a persistently overvalued dollar.” Former Treasury Department economist Stephen Miran calls it “the root of [US] economic imbalances.” A strong dollar makes “American-made goods more expensive overseas and foreign imports cheap in our stores.”
A strong dollar contributes to America’s trade deficit by making U.S. goods less competitive. “This is a big reason we’ve run trade deficits in goods year after year, hitting a record $1.2 trillion in 2024.”
“An overvalued dollar means US companies can offer great products and still lose out, because the currency exchange rate makes their price less competitive.”
Currency Misalignment and Trump’s Strategy
Trump’s “America First Trade Policy memorandum explicitly called out currency manipulation and ‘misalignment’ as targets for action.” Even if countries don’t openly manipulate their currencies, “the result is the same when exchange rates get out of whack.”
Analyses by the Coalition for a Prosperous America show “many currencies are clearly misaligned against the dollar.” Trump has taken an official stance to counteract these imbalances: “Trump has declared an official strategy to push back on currencies that give foreign exporters an unfair advantage.”
While China is often the focus, “the problem is global.” Countries like Vietnam, Thailand, and Mexico “either undervalue their own currencies or benefit from the dollar’s strength.”
The strong dollar is largely due to foreign investment: “For rich investors and fund managers from Argentina to London to Tokyo to the Cayman Islands, US Treasury bonds are the safest in the world, while American technology stocks are the biggest and best way to play the artificial intelligence boom.”
How Tariffs and the Dollar Interact
Whenever the U.S. imposes tariffs, “the dollar starts to rise even further against the currencies of tariffed nations.” In 2018-2019, when Trump’s China tariffs were introduced, “the dollar’s value rose, wiping out roughly half of the tariffs’ impact.”
To counteract this, “the United States has to hold its currency stable against the nations on which they are imposed.”
According to economic calculations, “the US dollar is some 20% to 25% overvalued, before considering any tariffs.” That means the correct exchange rates would be closer to “$1.30 to the euro” rather than the current “$1.08 to the euro,” and “5.8 yuan to the dollar” instead of “7.25 yuan to the dollar.”
At those levels, U.S. goods “become much more competitive— and foreign-produced goods less so.” A car made in America “becomes 25% more competitive on global markets, while a toy or a smartphone made in China becomes 25% less competitive in the US market.”
What Comes Next
Trump’s advisers understand the implications. “Once tariffs are accepted as an ordinary tool of economic policy (which they were for the 130 years prior to World War II), there’s a great likelihood that the president and his advisers will start talking about moving the dollar back down toward a competitive rate.”
One way to accomplish this is through intervention in foreign exchange markets. “For example, if Trump or Treasury Secretary Scott Bessent publicly directed the Treasury or Federal Reserve to intervene in foreign exchange markets by selling dollars for foreign currencies, the markets would respond quickly by driving the dollar’s value down.”
The combination of a weaker dollar and targeted tariffs “will deliver a huge boost to US manufacturers, workers and farmers as they compete in world markets.
