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Trump’s team is reportedly considering a weaker dollar to boost exports. One of them is Robert Lighthizer, Trump’s former trade secretary and possible future Treasury secretary.
In his 2023 book, Mr. Lighthizer suggests an approach similar to the Plaza Accord of 1985. Back then, the Reagan administration used the threat of tariffs to force trading partners to agree to new exchange rates so that the dollar could fall against the yen. In the 1980s, Mr. Trump complained about Japanese imports. Today, of course, the big worry is Chinese imports.
The Plaza Accord did not help reduce the U.S.-Japan trade deficit, but it did reduce the U.S. trade deficit with other countries by making U.S. exports more competitive.
This reminds me of a nominee to the Fed during the Trump administration who was reportedly interested in these kinds of ideas but had to back out. Some worry that a weaker dollar would increase inflation and undermine U.S. soft power by causing countries to substitute other currencies for the dollar in trade, thus preventing the U.S. from freezing those countries’ assets.
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