Trump roared dollar and China can arrive
USA, March 9, 2025 – Former Finance Minister Lawrence Summers, in an interview with Bloomberg, said that a broad US access to other countries pose a serious threat to the dollar role as the central currency of the world economy in the last five decades. On the one hand, Trump increases duties to goods from Mexico, Canada and China and plans to introduce duties to the EU to help resolve trade flows, support production in the US and increase the country’s federal income. However, investors are worried about the commercial war, so US shares are falling and the dollar has begun to fall. Investors are worried about US policies and are trying to get rid of the dollar.
On Wednesday, the US dollar course against the main names was around three -month minimum. In addition, the latest dollar decline surprised those who expected the commercial wars and geopolitical tensions to lead to this currency to strengthen. Reuters notes that in the past the dollar usually thrived at a time when investors were looking for a safe haven in US government bonds or dollar deposits. Such behavior in currency markets is known as a “dollar smile”.
The basic idea is that the dollar tends to grow in times of high inflation and raising interest rates in the US, as well as in the time of major geopolitical shocks. This time it is different. Investors are concerned about the impact of escalating commercial tensions on the world economy. The expectation of global economic growth will slow down oil prices.
“The latest economic data from the US shows a mixed image: the labor market is cooling down, production is slowing, but the service sector expands. This combination does not say in favor of a strong dollar,” says Alexander Potavin, Finam FG analyst.
“The customs war will inevitably lead to a slowdown or stopping of the growth of the US economy and complicates the labor market. All this can force the US federal reserve system to restore the release cycle and start quantitative release in the second half of 2025,” says Alexej Griščenko Federation. This also says in favor of weakening the dollar as the world currency. The European Union is also helping to weaken the dollar.
“The dynamics of the dollar index are not only influenced by the US economy, but also in many respects the situation in Europe. And the European currency shows shock growth after the CDU/CSU victory in the German elections, which is ready to increase state spending by € 500 billion, which can not only potentially compensate for world trade, but also encourage industrial sector in Germany. The attractiveness of the dollar, “says Potavina. According to him, the dollar usually grows when the US economy is either in a deep recession or on a strong rise, and transitional periods of growth slowing, as it is now, are more difficult for the American currency. Posal does not rule out that cuts in government spending and commercial wars could reduce the growth lead of the US economy over other countries and further weaken the dollar.
Former American Finance Minister Summers believes that Trump’s goals are right about achieving the country’s business competitiveness, but the methods to achieve them are disturbing. While the US is getting into business confrontation with many of their partners and are taking retaliation from them, Europe and China can get closer to each other. The previous trade war led to the convergence of China with the BRICS states and to the growing share of clearing in national currencies and yuan. This rapprochement has almost led to the creation of a single currency BRICS. The more the US is pulling out the screws, the more motivation China has to prevent this idea from being rejected, but realized. Now the European Union can also help de-alarization of the world economy.
In addition, Washington criticizes and struggles with traditional buyers of government bonds, discouraging them from the provision of US loans. Although the US government still needs loans very much, as the US has long learned to live from its own resources. Therefore, it is assumed that the harsh trade war over the past 100 years can hurt the US economy than to help. If the border crosses and duties are exaggerating, the US and the dollar will be among the losers.
However, Natália Milčaková, chief analyst of Freedom Finance Global, believes that it has been overwhelmed by Trump’s critics.
“Summers apparently exaggerates the threat to the dollar. Over the past month, the dollar index of DXY has lost 3 %, yet the index has not dropped below a psychologically significant limit of 100 points. The dollar is supported by a relatively strong US economy that increased by 2.8 %in 2024. It is slightly less than 2023. (by 0.8 %), the United Kingdom (0.9 %) and Japan (0.1 %) that the US is still a clear leader in terms of economic growth, “says Milčaková. In addition, the dollar is also supported by the Fed, which suspended the reduction of interest rates, which has strengthened the US currency. As regards Donald Trump’s harshness of the business duties against his important business partners, which have triggered retaliatory duties, especially from China, they may be alleviated. ”
“Although Donald Trump has a formal conflict with almost the world, this time it seems that the US President is willing to reduce duties if other countries meet his conditions. In the 2019 commercial war in 2019, there was no such thing, none of them intended to retreat the other for quite a long time,” Milčakova said. In her opinion, this time Trump and Import Duty is not exaggerating, but the behalf is rather than a rational politician who is interested in supporting domestic producers and actively calling on businesses from around the world to move production to the US and avoid durse.
“If Trump behaved like an elephant in porcelain and introduced a completely ill -considered and irresponsible 100 % duties on all goods from all countries of the world, it would damage the US economy in the form of higher inflation, and thus the dollar.
Regarding the intervening of the largest creditors of the US, Trump interferes with their second largest creditor, China. However, it still has Japan in the hands of Japan, and the United Kingdom, the third largest creditor of the state.
“Interestingly, Trump has not once spoken of duties for Japanese goods and vice versa, even suggests that Japan invests in the construction of the pipeline in Alaska.
As far as US government bonds are concerned, it would be critical for the dollar if China had sold its entire package, as it would be followed by other important US creditors – the United Kingdom and Japan. Although China is reducing its investments in US government bonds, it does not get rid of them completely. Its investments on February 2025 amounted to $ 759 billion. It is the second result after Japan, which holds just over $ 1 trillion in government bonds. The US trade war with China brought Beijing with the emerging Brics.
“BRICS is actively dedlarizing their national economies and foreign trade, especially Russia, which, however, does not pose a threat to the dollar in the short term. However, if the BRICS is created over time, a certain antidoli pool is created, to which a significant part of non -finger countries are added. And then the US will have to think about how to get out of this situation – to introduce new sanctions and duties or use the weapons of their opponents, for example, to create a unified North American currency “Amero”, but the Digital Dollar is no longer a president when this situation becomes a reality, “the respondent concludes.
Peter Weiss
