Trump Policy Brings USD to 3 Year Low

The value of the US dollar has dropped to its lowest point in three years (since 2015).

dollar index

As reported by RT America:

“The ICE US Dollar Index, which measures the American currency against a basket of six rival currencies, dropped 1 percent to 89.245 on his speech, falling below 90 for the first time since December 2014.”

The decreased value in the dollar comes as a deliberate act by the US government along the political line of Donald Trump. The US has kept the value of its currency high for so long (with the help of Chinese purchases of US debt) because it allowed them to import from other countries much more cheaply. This has been the main engine behind the shifting of industrial production from the US to regions with a lower labour cost.

Steven Mnuchin, who was speaking at the World Economic Forum in Davos, Switzerland, said, a weaker dollar “is good for us as it relates to trade and opportunities.”

He also added, “in the long term, the strength of the dollar is a reflection of the strength of the US economy and is and continues to be the primary currency, in terms of the reserve currency.”

This is in line with president Trump’s current economic policy. His goal was to push “America First”. Meaning, he wants domestic production of commodities once again. In order for this to take place, there must be a good reason for companies to purchase those goods over the lower cost ones coming out of a market like China.

The path the Trump administration is taking is to facilitate this is a deliberate lowering of the US dollar. By doing so, the cost of importing goods goes up, while the cost of domestic production goes down. The lowering of the US dollar isn’t that significant compared to the value of the Chinese yuan. it is going to take a great deal more to incentivize such a shift in manufacturing, but this has been a campaign promise by Trump that he seems intent on keeping.

In this writers opinion, there’s little chance that this policy will remain for the long term. Even with this reduction in the value of the USD, Chinese labour costs are still astronomically lower than those in the US. The decrease hardly puts a dent in the desire to import form China, it merely makes it slightly less profitable to do so.