Trump's misguided plan to weaken the dollar

Now that US President Donald Trump's tariff war is in full swing, investors around the world are asking: What's next on his agenda for upending the global economic order?

- KENNETH ROGOFF

Many are turning their attention to the so-called "Mar-a-Lago Accord" — a plan proposed by Stephen Miran, chair of Trump's Council of Economic Advisers, to coordinate with America's trading partners to weaken the dollar.

At the heart of the plan is the notion that the dollar's status as the world's reserve currency is not a privilege but a costly burden that has played a major role in the deindustrialisation of the American economy. The global demand for dollars, the argument goes, drives up its value, making US-made goods more expensive than imports. That, in turn, leads to persistent trade deficits and incentivizes US manufacturers to move production overseas, taking jobs with them.

Is there any truth to this narrative? The answer is both yes and no. It's certainly plausible that foreign investors eager to hold US stocks, bonds, and real estate could generate a steady flow of capital into the United States, fueling domestic consumption and boosting demand for both tradable goods like cars and non-tradables such as real estate and restaurants. Higher demand for non-tradable goods, in particular, tends to push up the dollar's value, making imports more attractive to American consumers, just as Mr Miran suggests.