US President Donald Trump seems convinced that a strong US dollar is hampering American industry. According to him, the US needs a weaker dollar to stimulate exports, bring back manufacturing jobs and reduce the country's huge trade deficit. But not everyone thinks like him.
According to David Lubin, a strong dollar makes it possible to buy other currencies relatively cheaply, while a weak dollar makes foreign currency purchases more expensive. The senior fellow at the London-based think tank "Chatham House" also told DW that "it's all about exchange rates". "When the dollar is strong, imports into the US increase because foreign goods become cheap compared to goods produced in the country. At the same time, US exports are declining as they become more expensive," the expert explains.
What power does the US president have?
Controlling the dollar exchange rate is extremely complex and in most cases is beyond the president's control. The value of the dollar is determined by the vast global currency market, not by the US president or government, Lubin says.
Anthony Abrahamian, investment strategist at the US investment bank Rothschild & Co Wealth Management, argues that part of the reason for the strong dollar over the past decade is America's "stronger economic growth rates" compared to other industrialized countries.
At the same time, the US trade deficit appears to be mainly "a function of relative demand," Abrahamian told DW. "The American consumer is the number one customer in the world - they spend more freely than anyone else - and therefore America will probably import more than they export," he added.
What power does the US government have?
However, the US government has a number of levers with which it can steer the dollar and the economy as a whole.
The US Federal Reserve (the central bank) can lower interest rates. Officially, the president has almost no authority in this area, but Trump has tried to influence the head of the central bank in the past.
In addition, the Treasury Department could try to buy foreign currencies through its Foreign Exchange Market Stabilization Fund. But, according to Abrahamian, it "would have to buy huge quantities, given the huge size of today's foreign exchange markets, where daily global turnover is in the trillions of dollars." With more dollars on the market, their value should fall.
David Lubin argues that Trump could also weaken the dollar by making the country "less attractive for investment". This is a "double-edged sword", but it has actually started to happen in recent weeks.
"Trump's frequent reversals on tariffs, for example, give the impression that the political environment in the United States has become more unstable, and that makes the United States a little less attractive as an investment destination," Lubin continues.
A slowdown in the US economy could further lower the value of the dollar.
A set of financial instruments
Another option is for the US to convince or force other countries to sell their dollars for other currencies. Such a step may seem unrealistic, but there is a precedent in this regard: in 1985 in New York, the five largest economies in the world at the time - the United States, the United Kingdom, Japan, West Germany and France - signed the so-called "Plaza Accord". At the insistence of the United States, the G5 countries agreed to sell dollars jointly and purposefully in order to weaken the dollar against other major currencies.
A similar plan still exists today and is known as the "Mar-a-Lago Accord". Last November, the idea was launched by the chairman of Trump's Council of Economic Advisers, Stephen Mirren. This plan has a distinctly aggressive nature: it provides for sanctions for those who refuse to implement it - higher tariffs or the closure of the American defense umbrella for them.
Abrahamian sees big differences between 1985 and today. "On the one hand, the Plaza Accord was voluntary, and talks about such an agreement today are likely to face resistance from both politicians and finance ministers," he says.
And according to David Lubin, this Mar-a-Lago Accord is highly unlikely, since China will be sitting on the other side of the table. "I think Beijing will have a hard time letting itself be swayed by a significantly stronger currency," he notes.
What could a weak dollar mean for the United States?
A weaker U.S. dollar could have many side effects, such as higher commodity prices, since they are mostly traded in dollars on international markets. Lubin believes that the main risks for U.S. households are inflation, rising prices and rising unemployment.
But even if Trump manages to devalue the dollar, it may not lead to increased U.S. competitiveness, because prices "are not just determined by exchange rates, but also by production costs, productivity and quality," Abrahamian says.
Ultimately, however, it is unclear whether the president will actively try to devalue the dollar. "We should not always take Trump at face value," Abrahamian says.