Weekend Edition: Trump is not the end of the world
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How is Donald Trump's presidency affecting the global economic outlook?
Well, imagine this. Martin Wolfe is not the biggest Donald Trump fan, quite the reverse. But when it comes to his influence on the world, that's Donald Trump's. Well, we are feeling it. But is he just helping to balance things out a bit? Less US dominance and a more fragmented global economy where blocks like Europe uh have to stand on their own more? That's not necessarily a bad thing, is it? That's this week. The morning call from NEB with Bill Dobby The weekend edition. So what is the future for the US dollar and for investment in the United States? Remembering that Donald Trump is on the mission to drive more investment in the United States, to bring those jobs back home. Well, will he eventually get his way, or is he fighting the markets who will ultimately win?
Well, Martin Wolfe is the Chief Economics Commentator for the FT. It's good to welcome him back to the morning call. So Donald Trump has said, Martin, that That he still wants the US dollar to be the world's reserve currency, that it would be a battle lost if he didn't retain that crown. And you can see why, you know, when you use it as a weapon or as a bargaining chip, you don't want to lose it. But really, I wonder if America ultimately would be better off if it wasn't the reserve currency. I mean it would mean the dollar was weaker, so imports would be more expensive, exports would be cheaper. That would help his balance of. for trade, which is what he's wanting to do. So why this desire uh from the US President for this strong dollar?
Well, there are clearly people in his administration who sort of agree with your view, um but as in so many areas, I I feel that Donald Trump is simply a very confused man. He he i I think the very important thing to understand is he doesn't think rigorously and he's to put it bluntly, not very educated, so he doesn't see how these various things work. Relate to it to one another. So just to take this example, he uh clearly wants to reduce the US external deficit. And that means, by definition, that he wants the world uh to lend and invest less in the US than it does now, because it's the lending from the rest of the world and the investment, equity investment, that is actually. Actually financing this external deficit he hates.
So he can't rationally, or at least not very easily, simultaneously want the people to go on buying all these US assets, including, of course, US Treasuries, which they're very concerned about, because they're creating so many, and at the same time want them to buy less of it. They can't buy more and less at the same time. But that confusion just seems to be there in his mind. What does he really want? I think they do uh what does a rational person want?
Is Trump's push for a strong dollar helping or hurting US investment?
I can understand the argument for reducing the current account deficit. I don't think it's that important. Um but uh and I think it is possible for the dollar to remain the world's currency without a huge current account deficit. But ultimately the more He wants people to invest in his country, the more likely it is that there will be an external deficit. And that's a real puzzle. So he can have a screw he can have a dollar as a reserve currency without huge external deficits. That's not universally accepted, but I believe that is the case. But He can't have everybody investing in the US and get rid of the current account deficit.
And as you've written in one of your recent columns, uh because of the way he is behaving, he is actually removing the one thing that everyone wants from a reserve currency, which is stability. Uh and he because he's using it as a as a tool for coercion, which obviously means that people will look for alternatives. But you've written that you're not quite sure that there are alternatives, that ultimately the Second best choice is a long way behind.
I think that is the case. Uh so that creates a very interesting question of where the world might go. Uh why do we end up I think it's an important question with m usually a dominant reserve currency? And the argument, of course, uh uh uh rests on that n nice um economist phrase network effects.
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Chapters
8 chapters
1
How is Donald Trump's presidency affecting the global economic outlook?
0:01–2:49
2
Is Trump's push for a strong dollar helping or hurting US investment?
2:49–6:03
3
Why does Trump want a stronger dollar and how would it impact trade balances?
6:03–8:54
4
What contradictions exist in Trump's goal to reduce the US external deficit?
8:54–11:24
5
How does Trump's behavior undermine the dollar's status as a stable reserve currency?
11:24–14:53
6
Can a basket of currencies or the IMF SDR replace the US dollar as the global reserve?
14:53–18:19
7
Is the US dollar losing value and confidence amid Trump’s policies?
18:19–21:03
8
Will the world shift to fragmented currencies and digital assets as the dollar’s dominance wanes?
21:03–23:04