Free-market advisers to Donald Trump are bracing for a renewed effort by protectionist allies of the former president to devalue the dollar, a measure critics say would increase prices and harm living standards.
Supply-side conservatives are worried about a renewed focus by Trump on the dollar, as well as by reported plans from former U.S. Trade Adviser Robert Lighthizer for devaluing the dollar through administrative action. The purpose of devaluing the dollar would be to slash the U.S. trade deficit and reshore manufacturing jobs, both top goals for Trump in a second term.
Lighthizer, 76, has extensive experience in trade policy and on China, serving as deputy U.S. trade representative in the Reagan administration before spending decades working in international trade law. Politico reported that he and other advisers are actively examining ways that the U.S. could tamp down the value of the dollar in an effort to boost U.S. exports. American-made goods, priced in dollars, become cheaper to foreign buyers as the value of the dollar declines.
But other Trump allies would oppose such a maneuver on the grounds that it would boost inflation and damage the country’s position in international affairs.
Stephen Moore, a Heritage Foundation economist and informal adviser to Trump, told the Washington Examiner that he does not think purposely devaluing the dollar would be a good move. He also acknowledged that Lighthizer has been talking about such a move.
“I think that we want a stable dollar, I think it’s really important for our prosperity,” Moore said. “If the dollar is devalued, that means that the value of the dollars that you have is less.
“So that’s not a great thing,” he added.
The price of a dollar, in terms of other currencies, is determined by supply and demand. One way to lower the price would be to increase the supply. Expanding the money supply, however, means more dollars chasing the same number of goods and services and would result in higher inflation, all else equal. Inflation is already high — 3.5% over the past year, according to the Consumer Price Index.
Moore said he does believe Lighthizer is right in that China is manipulating its currency in a way that is harmful to the United States and added that the U.S. does need to get tougher with China.
“I’m not sure devaluation is the right way to do it,” he said.
Moore was an adviser to Trump in crafting the 2017 Trump tax cuts, the most important economic legislation passed during the former president’s first term in office. Moore also was nominated by Trump to serve as a governor on the Federal Reserve board, although he later withdrew from consideration.
Moore is part of Committee to Unleash Prosperity, a group he founded with Steve Forbes of Forbes Media; Phil Kerpen, the president of American Commitment; and Arthur Laffer, one of the intellectual fathers of supply-side economics.
The group is influential in Trumpworld and reportedly meets with the former president about every six weeks to float names for possible political appointees and brief him on economic policy.
The group’s honorary chairman, New York billionaire John Catsimatidis, criticized Lighthizer and the idea of a dollar devaluation.
“I think the guy is full of crap, and I think he’s trying to panic people,” he said during a phone call with the Washington Examiner. He said trying to devalue the dollar is “nonsense.” Catsimatidis, the CEO of Red Apple Group, said he has not personally spoken to the former president about the matter.
When asked about the dynamic of different economic advisers pushing for contrasting policy visions, Catsimatidis said Trump should guide his policy decisions by common sense and not listen to “extremists on the Left or the Right.”
When asked for comment on the idea of devaluing the dollar, the Trump campaign eventually responded by referencing a new post from the former president on his social media platform, Truth Social, in which he called it a “total disaster” that the dollar hit a 34-year high against Japan’s currency, the yen.
“When I was President, I spent a good deal of time telling Japan and China, in particular, you can’t do that,” Trump wrote. “It sounds good to stupid people, but it is a disaster for our manufacturers and others.
“They are actually unable to compete and will be forced to either lose lots of business, or build plants, or whatever, in the ‘smart’ Countries,” Trump continued. “This is what made Japan and China into behemoths years ago. I put limits on both (and others!), and if they violated those limits, there was hell to pay. Biden has let it go. Watch them now pick apart the U.S. It will be an open field day. Don’t let this happen Crooked Joe. Wake up and smell the roses!”
Trump tried at various times in his first term to pursue a weaker dollar. His calls for the Federal Reserve to ease monetary policy to weaken the dollar led him into outright conflict with Fed Chairman Jerome Powell.
He also used other tools for the same purpose. With guidance from Lighthizer, he hiked tariffs on China, as well as on commodities such as steel and aluminum and goods such as washing machines, using existing powers, especially national security authorizations.
This is not the first time the idea of artificially weakening the dollar has been discussed within Trump’s orbit. In 2019, Peter Navarro, an adviser to Trump on trade, floated the idea of directly intervening to weaken the dollar during a White House meeting.
Generally, mainstream economists say that the U.S. should allow its currency to “float” — not that there should be a strong dollar or a weak dollar, but that the currency should reflect market fundamentals.
“Overall, you’re not going to find a lot of economists, at least for developed countries like the United States, arguing for trying to manipulate a currency to make it stronger or weaker,” said Scott Lincicome, vice president of general economics at the libertarian Cato Institute.
Desmond Lachman, a senior fellow at American Enterprise Institute, said a move toward devaluing the dollar would constitute a sea change in the international economic system, which for decades has rested on the assumption that major economies won’t engage in competitive devaluation.
“The whole system was set up after the experience of the 1930s, that if different countries try to do what they call ‘beggar-thy-neighbor’ policies, then the whole system breaks down,” Lachman said. “You get all sorts of trade restrictions going everywhere.”
The most fundamental objection to an effort to intentionally devalue the dollar is that it would involve losing control over inflation.
“Anybody who was buying, whether it’s clothing or computers or smartphones or anything that had either come from overseas or had overseas components, [would] find that the price was going up, and then that would be a horrible thing,” said Michael Mandel, vice president and chief economist at the Progressive Policy Institute in Washington.
The logistics of devaluing the dollar would be complicated. Today, the Fed controls monetary policy and is managed by appointees who are subject to Senate confirmation. Powell’s term runs through May 2026 — which would be well into the next presidency. The president has limited ability to remove a Fed chairman.
Under current arrangements, the responsibility for managing the dollar falls to the Treasury, which has some tools for intervening in currency markets. In practice, though, it would be difficult for the Treasury to pursue a policy at odds with the Fed’s conduct of monetary policy.
Another possibility for a Trump administration would be to try to influence the value of the dollar through tariffs policy. The president has fairly broad authority to unilaterally impose tariffs, and the threat of doing so could be used to force other countries to adjust their currencies.
“I think that this is mostly a threat, and Trump has used the threat of tariffs, revaluation of the dollar, as a way to force countries like China and other nations to stop their predatory trade practices,” Moore said. “So, I agree, and Trump has said that he uses tariffs as a weapon — and oftentimes very successfully, by the way.”
Such interventions have precedent. In 1985, for example, following a steep run-up in the value of the dollar, the Group of Five advanced nations signed the Plaza Accord, committing to intervene to depreciate the dollar in relation to Japanese and German currencies.
Still, the U.S. faces unique obstacles in changing the value of its currency because of its dominance across the world — according to one estimate, more than 60% of all countries, accounting for more than 70% of world output, use the dollar as their anchor currency.
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Joshua Hendrickson, an associate professor of economics at the University of Mississippi who has published on the economic and geopolitical factors that have led to the dollar’s dominance, said threatening to devalue the dollar could work as a negotiating tactic to pressure other countries to stop manipulating their currencies. Over time, though, the pressures that have led to the extensive use of the dollar worldwide would prop it back up, he said.
“The dollar is kind of artificially strong, but for structural reasons,” he said. “So you’re not really going to have the ability to depreciate the dollar for any significant period of time.”