One of the strangest repercussions produced by the tariff war on the American economy is the decrease in the value of the dollar and the loss of investors in the United States during the era of President Donald Trump, which restores to the minds of the British pound after the tripartite aggression against Egypt in 1956 with the difference in the context in both cases.
Currency rises and decreases constantly due to fears of inflation and central bank movements, along with other factors. But economists are afraid that the recent decline in the value of the dollar will be sharp, to the point that it reflects more dangerous in light of Trump’s endeavor to reshape world trade, which is the loss of confidence in the United States.
The previous US administrations of the Republican and Democratic parties have strengthened the dominance of the dollar in the border trade, as a safe haven, for decades, because it helps to keep the costs of US borrowing low, and allow Washington to review its strength abroad, which are enormous advantages that may disappear if confidence in the United States is damaged.
“Confidence and global dependence on the dollar has been built for half a century or more. But this dependence may fade in a jiffy,” says economist at the University of California, Barry Aklengrin.
Since mid -January, the dollar has decreased by 9% against a basket of currencies, which is a rare and sharp decrease, reaching its lowest level in 3 years.
Many investors, who are afraid of Trump, do not believe that the dollar will quickly join its position as a global backup, but rather expect a slow decline. But even decline is scary enough, given the benefits that will be lost.
As most of the world’s commodities circulated in dollars, the demand for the green currency remained strong even as the United States doubling the Federal Religion in 12 years, and it would usually lead investors to flee.
This allowed the American government, consumers and companies to borrow at abnormally low interest rates, which contributed to accelerating economic growth and raising living standards.
The dollar’s dominance of the United States also allows the control of other countries such as Venezuela, Iran and Russia by depriving it of a currency you need to buy and sell with others. But now, this “heavy concession”, as economists, is suddenly at risk.
Advantages are eroded
“The dollar’s properties as a safe haven are eroding,” a bank “Deutsche Bank” said in a memorandum to customers earlier in this April.
In a more conservative report issued by the “Capital Economics”, based in London, it guarantees the saying, “It is no longer an exaggeration to say that placing the dollar as a reserve, and its broad -dominant role has become at least somewhat suspicious.”
Traditionally, the dollar was rising with the decrease in demand for foreign products due to customs duties. But the dollar not only failed this time, but also fell, which baffled the economists and harmed consumers, and the dollar lost more than 5% against the euro and the pound sterling, and 6% against the yen since early April.
As any American traveler knows abroad, he can buy more with the rise of the dollar, and buy less as it decreases. Now the prices of French wine, South Korean electronics and a range of other imports are rising, not only because of customs duties, but also because of the weakening of the currency.
Any loss of a safe haven may affect American consumers in another way, such as high real estate mortgage interest rates and auto financing deals, as lenders demand more benefit in exchange for additional risks.
Federal debt
The most anxious thing is the possibility of high interest rates on the enlarged American federal debt, which has already reached 120% of the annual US economic product, which is fraught with risks.
“Most countries that suffer from this debt compared to GDP will cause a major crisis, and the only reason that makes us survive is the world’s need for the dollar to trade in,” says Ben Steel, an economist in the US Foreign Relations Council.
Alternative
“At some point, people will seriously search for alternatives to the dollar,” Steel added, and they have already done so, with simple help from an American economic competitor.
For years, China has concluded commercial deals with Balouan with Brazil to buy agricultural products, with Russia to buy oil, and with South Korea to buy other goods.
China also provides loans with yuan for central banks that strongly need liquidity in Argentina, Pakistan and other countries, to replace the dollar as an emergency and last resort.
risk
“If the deficit continues to exacerbate, America risks the loss of this center in favor of digital assets such as Bitcoin.”
“Everyone is not convinced that the main reason for the decrease in the value of the dollar is the loss of confidence in the United States.”.
It is believed that the weakness of the dollar reflects an expectation of high inflation due to customs duties, but even if the investors are not comfortable to keep the dollar, he says, they are in reality do not have many options. There is no currency or other origin, such as yuan, bitcoin or gold, huge enough to deal with it.
“The United States will lose its reserve currency when there is someone who pulled it from it,” said Richoto.
The volatile policy frightens the investors, and it may be the case, but Trump tests its limits, and not only the customs duties, but also on the volatile way it applied, the inability to predict makes the United States look less stable and reliable, and less safe for their money.
There are also questions about his region in justifying this policy, and Trump says that the American customs duties will reduce the trade deficit, which is cited as evidence that countries “use” America.
But when calculating customs duties, he looked at the trade deficit in goods only, and not in the services in which the United States exceeds. Most economists believe that the trade deficit is not a sign of national weakness in any case, because it does not hinder economic growth and prosperity.
Trump has also repeatedly threatened to reduce the independence of the Federal Reserve, which raised fears that he would be forced to reduce interest rates to enhance the economy even if this threatens to exacerbate unbridled inflation.
This is a sure way to push people to give up the dollar. After the President of the Federal Reserve, Jerome Powell, said last Wednesday that he would wait before taking any interest rates, Trump strongly criticized him, saying: “Powell cannot be dismissed enough quickly.”
The economists criticized Trump’s announcement of customs duties on April 2 another event, the Suez crisis in 1956, which broke the back of the pound sterling.
The military attack on Egypt was poorly planned and implemented, and revealed a British political deficit that led to a decline in confidence in the country, and the British pound decreased sharply, and its position, which it gained for centuries, collapsed as a dominant commercial and reserve currency.
“The liberation day, as Trump called it on April 2, can be remembered as a similar turning point if the president is not careful. This is the first step towards a slippery slope in which international confidence in the US dollar,” says Ikengrin of the British company “Berkeley” that specializes in investment and financial services.
