When we think about President Donald Trump’s approach to trade, one thing stands out: he has imposed tariffs on many countries, like China, Mexico, and the European Union, while also pushing for the U.S. dollar (USD) to remain the dominant currency used in global trade. These two policies might seem unrelated at first, but they work together to help the U.S. maintain economic strength.
Tariffs and the U.S. Economy
Tariffs are taxes placed on goods coming into the U.S. from other countries. The goal of these taxes is to make imported goods more expensive, which, in theory, encourages people to buy domestic products and supports local businesses. However, there’s a downside. When tariffs raise the prices of imports, U.S. consumers end up paying more. If a 25% tariff is added to Chinese electronics, for example, Americans will face higher prices for products like phones and tech gadgets. This could lead to inflation, where the cost of living increases, and consumers start feeling the pinch. To avoid protests from citizens who would be unhappy about higher prices, the U.S. would need a way to mitigate the effects of these price hikes. This is where the role of the U.S. dollar becomes crucial.
The U.S. Dollar’s Role in Global Trade
The U.S. dollar plays a massive role in the global economy, as it is the primary currency used in international trade. Many countries use the dollar to buy and sell goods, from oil in the Middle East to electronics from Asia. The global demand for USD gives the U.S. a unique advantage. While most countries have to worry about inflation if they print too much money, the U.S. can print more dollars without it devaluing quickly. This is because the world’s reliance on the dollar helps keep its value strong.
Weak Foreign Currencies and the U.S. Dollar Advantage
By imposing tariffs on countries like China, Trump effectively weakens their currencies. When a foreign currency weakens, the cost of its goods becomes cheaper for U.S. buyers. In other words, even though tariffs are in place, the weaker currency makes imported goods more affordable for Americans. This means that while foreign goods may be taxed higher, the impact on U.S. consumers is minimized, as the value of the dollar remains strong compared to the weaker foreign currencies. Since the U.S. dollar stays strong, it ensures that the U.S. can continue buying foreign goods at a relatively cheaper price despite tariffs, while other countries deal with the consequences of a devalued currency and higher import costs. This provides the U.S. with an economic advantage, helping it avoid the inflationary effects that would normally accompany tariffs.
Trump’s Strategy: “Make the Cake and Eat It All”
Trump’s approach can be compared to the analogy of “making the cake and eating it all.” By imposing tariffs to weaken foreign currencies, he is essentially creating a situation where the U.S. benefits from cheaper goods while the rest of the world bears the economic burden. The U.S. can print more money without causing inflation, thanks to the global demand for USD, and continue buying foreign goods cheaply even as tariffs raise the prices of imports. This strategy ensures that the U.S. maintains economic strength by using the global role of the U.S. dollar to its advantage, while other countries are left to deal with the fallout from weaker currencies. The U.S. enjoys the benefits of the strong dollar while other nations face economic challenges as their currencies lose value.
Conclusion: Keeping the U.S. Strong
Trump’s push for the USD to remain the dominant global currency while imposing tariffs on other countries is part of a larger strategy to keep the U.S. economy strong. By weakening foreign currencies through tariffs and ensuring continued global demand for the dollar, the U.S. can avoid inflation while still benefiting from cheap imports. In this high-stakes economic game, the U.S. remains strong, while other countries struggle with weaker currencies. The U.S. gets the cake (a strong economy and low prices) and gets to eat it all (maintaining control over the global financial system). However, this strategy depends on the continued reliance of the world on the U.S. dollar. If that were to change, the U.S. could lose its economic advantage, and the ability to print more money without facing inflation could diminish.
So, in the end, Trump’s strategy could be seen as an effort to create and keep all the advantages of economic dominance while the rest of the world pays the price.