Trump Tariffs Strengthen Dollar, But Hedge Fund CEO Sees Impending Decline

The U.S. dollar has been on a tear since President Donald Trump's administration implemented a series of tariffs on key trading partners, including China, Canada, and Mexico. The dollar's strength can be attributed to increased demand for the currency, as imports become more expensive, leading to a trade imbalance and increased demand for the dollar. However, not everyone is convinced that the dollar's ascent is sustainable in the long run.

Kevin C. Smith, founder and CEO of Crescat Capital, has been a vocal critic of the dollar's dominance and has warned that a devaluation of the U.S. dollar is not only likely but "inevitable." Smith attributes the global economy's strain to the dollar's strength, which is putting pressure on the world economy. He suggests that a devaluation of the U.S. dollar, whether coordinated or organic, is likely to occur in the coming years.



Smith points to several factors that could lead to the dollar's depreciation in 2025, such as the decrease in fiscal stimulus and sustained low interest rates, which are partly designed to ease the federal government's growing debt burden. However, Smith stresses that currency movements are always relative, and no other major economy faces the same imperative as the United States, which must sustain GDP growth of nearly 5% merely to service its debt.

The U.S. dollar's strength has been a double-edged sword for the American economy. While a stronger dollar can bolster the 'U.S. exceptionalism' narrative, it can also hurt international company performance for U.S.-based investors and negatively impact U.S. companies with significant international exposure and U.S. exports by making goods more expensive abroad.

As the U.S. dollar continues to defy gravity, investors should carefully assess its potential impact on their portfolios. While the dollar's strength may provide short-term benefits, the long-term consequences of a devaluation could be profound, marking one of the most significant shifts in the global financial landscape since the 2008 Global Financial Crisis.