Opinion | Welcome to the sad new world of a weak US dollar

The US dollar has been a symbol of American power for decades. Around 90 percent show the dollar of the profit transactions of 7.5 trillion dollars that take place daily. The majority of the central banks see it as the core of their reserves. Consumers run in times of stress. Companies prefer the commercial invoice, regardless of whether they are based in Milwaukee or Malaysia.

The dollar may not soon lose its dominant role. After all, there is no obvious alternative in the wings. But it suffers from a self -inflicted wound and the consequences all around the world begin to feel.

A huge sale began in mid -January, when the investors bought euros in the hope that a new German government would loosen their wallet. This trickle turned into a “Sell America” ​​torrent after President Trump had shockingly large, broad -based tariffs presented on April 2, and followed by strengthening his attacks on the chairman of the Federal Reserve, Jerome Powell.

A search for new safe ports began. In the week, which ended on April 16, gold funds had had their greatest tributaries since 2007, while the sale of US bond funds has been the highest since the end of March 2020. The stock markets have not been spent since the pandemic or since the 2008 financial crisis.

Unpleasant stability has returned since the president brought most tariffs during the break and seemed to be released from his threats to dismiss Mr. Powell. But damage was caused. This year, until April 25, the dollar has lost more than 8 percent of value compared to the currencies of its large trading partners.

The White House has repeatedly given a preference for a weaker dollar that could increase manufacturing exports by becoming relatively cheaper. This worked in favor of the economy in the 2000s.

Unfortunately, what we see today is nothing comparable in this historical precedent. The way the Trump administration pursues its goals annoys investors and is less secure about its US assets. They not only question how the trade war affects global growth, but also the strength of the American institutions and the country’s reliability as a global partner.

The White House has long-held assumptions on topics such as the future of Ukraine and the sovereignty of Greenland and Canada and only a few years after Mr. Trump has advertised his trade agreement between the USA and Mexico-Canada as the “most modern, latest and most balanced trade agreement in our country’s history”.

The April meeting of the International Monetary Fund and the World Bank in Washington were filled with Chatter about how America behaved like an emerging market (think of Turkey). Some great foreign investors wondered whether they may have to pay a fee to buy us assets – an idea that was floating by the chairman of the council of business advisors, Stephen Miran – or whether the US government somehow prevents them from selling these assets if they wanted.

Investment committees all over the world, including in pension funds, foundations and central banks, will now decide whether to do their US investments. From mid-2024, overseeing investors held over $ 31 trillion in US stocks and bonds. Large institutional investors tend to move slowly, so that every shift would probably occur gradually. That means it would still reduce the dominance of the dollar. Even small changes, for example a reduction of two percentage points from each shares and bonds, would require 1.24 trillion dollars of 1.24 trillion US dollars, a large part of which would have to be necessary if they set up their capital. All cuts would also interpret less incoming investments in the future.

How will this weaker world feel like dollars? There are some advantages, including how a copied currency would help American exports. Mr. Trump hopes that during the tariff break, business will score the opportunities for American companies. And a softer dollar could help promote tourism to the United States, which shows signs of falling. That would support millions of jobs.

It would also make foreign assets more attractive. Let’s assume that I buy a Pied-à-Terre in Paris (we can all dream). I have to sell my dollars to purchase a few euros to complete the transaction. If the dollar continues to weaken the euro when I sell the apartment and bring my money home, I not only make a profit from any win in my real estate, but also through the exchange rate. A stronger euro means that I have a larger number of dollars back.

Unfortunately, this is not the end of the story, since a weaker dollar also introduces considerable potential costs. It makes imported goods more expensive, most likely the prices and undermines the purchasing power of the household. Procter & Gamble said in his most recent quarterly earnings publication that it was planned to increase prices for some of his products, although the consumer demand has slowed down. Imports, including raw materials, packaging and some finished goods, make up about 10 percent of all P&G goods sold in the USA.

This brings the FED into a difficult position because it navigates both in the inflation and employment goals. Inflation remains above the Central Bank’s 2 percent goal, and the labor market is solid for the time being. For this reason, the central bank kept the interest rates stable at its most recent meetings. But on the horizon there is slower growth and possibly faster inflation.

Mr. Trump, who focuses on growth, has loudly pushed the reduction in installments. So far, the Fed has disappointed. It knows that premature cut with increasing inflation expectations would risk its credibility, not to mention a greater potential exodus of US bonds.

The rest of the world is caught in the crossfire. Take Japan. Two weeks after Mr. Trump’s tariffs had been announced, private Japanese investors sold foreign bonds worth more than 20 billion US dollars. In the first week, the US government bond returns rose, which indicates that American debts were among the assets that the Japanese sold.

Japanese investors who sell US bonds will often sell the dollars that they receive to buy yen, which strengthens the value compared to the dollar. This was done this year to make a profit of 9 percent. Unfortunately, for Japan, the stock market is sensitive to exchange rates in view of the priority of exporters such as Sumitomo and Toyota. A stronger yen would undermine Japanese exports in addition to the tariffs. The Nikkei index lost almost 10 percent this year until April, even though it was a favorite of Wall Street.

The feeling of large Japanese companies has dropped quickly. The International Monetary Fund lowered the growth forecast for the gross domestic product 2025 Japan in April by half a percentage point to 0.6 percent, since the economy is expected from the trade war.

This dynamic plays in the largest trading partners in America. Even if the weaker dollar helps the American exports, the worldwide demand for its goods is softer. The 2025 forecasts of the IMF indicated global growth this year of 2.8 percent, a half percentage point lower than what it expected in January.

There is a better version of a falling dollar. Between mid -2001 and mid -2008, the currency gradually lost 40 percent compared to its main colleagues. Americans who were attracted to overseas in overseas sold dollars to buy foreign stocks and bonds. A strong worldwide demand for American goods combined with a competitive currency led to a robust export growth.

The economic advantages of this time with weak dollars were not evenly distributed. Export company Gedieh, but America still lost around three million jobs in production and continued an erosion observed for decades. Some of these losses came from the outsourcing production, including China – an important argument in today’s trade war. Another part comes from the increased use of technology – an issue that is particularly lacking in political conversations, especially threatening more work placement as progress in artificial intelligence.

The story tells us that a softer dollar is not a panacea and that it is also important to understand why the currency falls. Today’s political path can lead to some improved bilateral business opportunities. However, these profits are compensated for by damage, which flows to consumers and companies in the form of relatively higher prices and interest rates in the coming years.

If America wants to help and export workers and also have a weak dollar, it should think hard about which guidelines can collect America and the rest of the world together. Let us hope that the finance minister Scott Bessent will encourage his colleagues in the White House to act more with his recent remark in Washington when he said: “America does not mean America alone.”

Rebecca Patterson is an economist and Senior Fellow am Council on Foreign Relations that holds leading positions at JPMorgan Chase and Bridgewater Associates.

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