Trump Wants a Weak Dollar, But at What Cost?

At a restaurant in Iowa last week, Donald Trump called the dollar's 1.3% decline "great." For most presidents, a weakening national currency would be cause for concern. For Trump, it's exactly what he ordered.

The president's enthusiasm for a weaker dollar isn't new—he's been making this argument since taking out full-page newspaper ads in 1987 criticizing Japan's "brilliantly" managed yen. His logic is straightforward: if competitors like China and Japan can boost their economies with weaker currencies, why shouldn't America do the same?

But while Trump celebrates short-term currency moves, his broader policies may be undermining something far more valuable—America's "exorbitant privilege" as the world's dominant financial power.

The Weak Dollar Strategy

When Trump talks about currency strength, he's referring to foreign exchange markets, not your purchasing power at the grocery store. A weaker dollar makes American goods cheaper for foreign buyers, theoretically boosting exports and encouraging domestic manufacturing. It's the kind of policy that could bring back factory jobs and shrink the trade deficit—two of Trump's signature goals.

The challenge is that presidents typically can't just wish currency values up or down. As Kenneth Rogoff, former chief economist of the International Monetary Fund, puts it, hoping for a weaker dollar is "like doing a rain dance." Exchange rates depend on countless factors, with the Federal Reserve's interest rate policy usually carrying more weight than presidential preferences.

This is partly why Trump has been so keen on exerting greater control over the Fed—it's one of the few institutions that can actually move the dollar's needle.

The Privilege at Risk

Since World War II, the U.S. dollar has enjoyed unprecedented global dominance. Nearly 90% of foreign exchange trades involve dollars. Banks worldwide lend and borrow in dollars. Many international transactions that never touch American soil are conducted in dollars.

This dominance grants America what former French Finance Minister Valéry Giscard d'Estaing called our "exorbitant privilege"—the ability to borrow cheaply, run massive deficits, and impose economic sanctions with unmatched effectiveness. It's a privilege built on decades of perceived American stability and reliability.

But Trump's approach to international relations is testing that foundation. His distaste for global institutions like NATO and the World Health Organization, his unpredictable trade policies, and his willingness to strong-arm allies have given trading partners reasons to question America's long-term reliability.

Last spring's "Liberation Day" tariffs exemplified this tension. Within a week of the announcement, the dollar dropped 2%—not just because of the policy itself, but because it raised questions about whether America still deserves its privileged position.

The Erosion Factor

Maurice Obstfeld, another former IMF chief economist, warns that "with enough inner geopolitical chaos caused by Trump, and geo-economic chaos, the dollar's reach would shrink, and the reach of other currencies would rise."

The irony is stark: while Trump pursues a weaker dollar to boost American competitiveness, his broader approach may be weakening something far more valuable—the world's trust in American institutions and stability.

None of the potential alternatives—the euro, yen, yuan, or even bitcoin—appear ready to challenge dollar dominance in the near term. The dollar's supremacy is largely self-perpetuating: why use something else when everyone else is already using dollars?

But dominance built on trust can erode gradually, then suddenly. Each unpredictable policy decision, each abandoned alliance, each norm broken chips away at the foundation of America's financial hegemony.