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Is Trump's Re-election A Threat To The U.S. Dollar's Global Dominance?

AInvestMonday, Jul 15, 2024 5:30 am ET
2min read

According to Mark Sobel's view, former U.S. Treasury Department economist and U.S. Chairman of the Official Monetary and Financial Institutions Forum (OMFIF), Trump's re-election as President could threaten the global dominance of the U.S. dollar.

Last week, the Republican National Committee released Trump's presidential campaign platform, a list of 20 principles that will guide the policy direction of the Republican Party. In the 13th principle, the former President promised to continue to maintain the status of the U.S. dollar as the world's main reserve currency.

However, Sobel pointed out in a paper he wrote that Trump's potential second term could weaken the dominance of the dollar. He emphasized that if the dollar is threatened, the source will not be external, but is likely to come from a severe deterioration in the economic and financial conditions of the United States. Sobel believes that fiscal prudence is unlikely to be guaranteed under Trump's leadership.

Sobel concluded: While dollar dominance remains entrenched, both the platform and Trump policies would mean less confidence and trust in American leadership, weakened macroeconomic management, and enormous burdens on markets to finance a large supply of Treasuries.

Sobel wrote, taking fiscal policy as an example if the United States wants to keep the debt level controllable in the next few decades, it needs to abandon huge deficits. However, Trump promised large-scale tax cuts without cutting social security or Medicare. He also promised to implement a 10% universal tariff, which most economists believe will lead to inflation.

At the same time, Sobel pointed out that the large-scale immigration restriction plan is expected to slow down the economic growth of the United States. He believed these factors would put pressure on the stability of the dollar, although it is not enough to give another currency a chance to replace the dollar.

Sobel also pointed out that if geopolitical tensions continue to escalate, the dollar reserves will be reduced. This situation seems to be likely under Trump's leadership.

During his first term, Trump threatened to withdraw from NATO and pulled the United States out of key agreements such as the Iran nuclear deal, the Paris Climate Agreement, and the Trans-Pacific Partnership. Sobel wrote: Although the platform claims that alliances will be strengthened, can the United States still be seen as a reliable partner? Can the strong connection with allies continue?

Trump uses sanctions more frequently than Biden, which is generally considered a key reason for other countries to seek de-dollarization.

Even if these conditions deteriorate, Sobel does not believe that the dollar dominance will significantly decline in any form in the next four years.

But he pointed out that Trump's policies contradict to his campaign platform. He wrote: Policy and actions speak louder than slogans. This means that Trump's actual policies may weaken the goal of maintaining the global dominance of the dollar that he wants to maintain.

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