Experts are adamant that the biggest loser from the US tariff policy is the US dollar. Unlike stock markets, which have managed to recover a significant part of their losses, the US currency shows no signs of such recovery, writes the German public media ARD in its analysis on the subject.
The euro reached a three-year high against the dollar
Investors reacted to Donald Trump's new higher tariffs by selling dollars and fleeing to the euro, yen and Swiss franc. We are witnessing a dramatic development without parallel in the history of stock markets, the German publication points out.
This development reflects investors' fears about the consequences of Trump's chaotic tariff policy. The market is assessing the risks to the growth of the US economy more highly than inflation risks. Experts believe that the danger of the US falling into recession due to higher import tariffs has increased dramatically.
"The damage is done, the trust is destroyed"
The dollar's status as a safe haven is quickly evaporating. The market is starting to question the dollar's role as the world's reserve currency. The recently announced exemptions from high tariffs for smartphones, laptops and cars are not expected to change this, because companies still have no certainty in their planning. How long the "temporary" exemptions will apply - everything depends on President Trump's next move.
"The damage is done, the trust is destroyed", says in this regard, currency expert from "Commerzbank" Antie Prefke to ARD. As long as this uncertainty persists, a significant recovery in the dollar is unlikely, she adds.
Why does Trump want to weaken the dollar?
Trump himself is probably watching the dollar sell-off calmly, since its weakening as the world's reserve currency is one of the stated goals of his tariff policy. The logic behind this is as follows: A weaker national currency reduces the gigantic national debt, as well as the US trade deficit, ARD explains.
However, the current depreciation of the dollar is more of an "unplanned" side effect of the introduction of tariffs by Trump and his advisers. Their goal is rather to force US creditors into a coordinated devaluation of the dollar in the coming days and weeks, thereby increasing the competitiveness of American exports. The key word here is "Mar-a-Lago agreement".
What does the "deal" for the depreciation of the dollar provide?
The idea is from Stephen Miran, the new chairman of the Council of Economic Advisers to the US President. It provides, as with the "Plaza" agreement in 1985, that foreign creditors be convinced to convert their US government bonds into those with an extremely long term of 100 years and with low or, at best, no interest. However, no country would agree to such an exchange voluntarily unless it was threatened with high tariffs or the withdrawal of military protection from the US, ARD points out.
The German publication also recalls what the "Plaza" agreement in question achieved at the time: It was signed on September 22, 1985. of the five leading economic powers at the time - the United States, the United Kingdom, Germany, France and Japan - at the Plaza Hotel in New York. The aim is to weaken the dollar in order to reduce the growing US trade deficit. In a concerted action, central banks sell US government bonds from their holdings. The Plaza Agreement leads to a sharp appreciation of the yen and the German mark against the dollar.
Trump and Miran are playing with fire
Experts are convinced that Miran and Trump are playing with fire. Moritz Kremer, chief economist at the Baden-Württemberg Regional Bank, describes the idea as "extremely dangerous". "In all financial crises, US government bonds were a safe haven. This "Mar-a-Lago agreement" will undermine this haven," warns Kremer. "And the result will be a global financial crisis."
In fact, if the dollar were to cease to play the role of reserve currency, the consequences would be dramatic, especially for the United States itself: The demand for the dollar would no longer be natural, and the demand for US government bonds would also fall significantly. The profit, and therefore the interest that the US government has to pay to its creditors, would increase.
This will put an end to the easy refinancing of US government debt on the financial markets. The US government will no longer be able to borrow unlimited amounts of money - something it needs, given that the US is the most indebted country in the world in absolute terms with almost 37 trillion dollars, ARD also recalls.
American companies and consumers, and therefore Trump voters, will also be directly affected by the collapse of the dollar. It will deal a heavy blow to their well-being, thus they will bear the consequences of their president's confused economic policy. Economists from "Goldman Sachs" suggest that even generous tax cuts will not be able to compensate for this.
Mirán's expectations are not coming true
Did Miran and Trump think this through well? In fact, the economic policy concept of the US government has so far proven to be too short-sighted and ill-considered in many respects, and many of Miran's own expectations have not been confirmed.
For example, in his concept from November 2024, Trump's advisor predicted that the announcement of US tariffs would pass almost without any turmoil on the stock markets. However, we have seen that the reality is different, the German public media also points out.
Author: Angela Göpfert ARD