Who Will Benefit from the Dollar's Historic Decline
Author: Olga Samofalova
In June, the U.S. dollar recorded its worst performance against major global currencies since 1973. From the current situation, this is exactly what Donald Trump aims to achieve through his trade wars. However, the unpredictability of this president could have adverse effects on the U.S. economy. Why might Trump's plan to revitalize American industry by weakening the dollar not work?
In June, the U.S. dollar fell 10.7% against major global currencies, marking the worst performance since Nixon broke the gold standard in 1973. Moreover, the future outlook for the dollar is not optimistic.
Historically, the dollar tends to depreciate during crises. For example, after the 1985 Plaza Accord was signed, the dollar declined as the U.S. and its allies decided to weaken the dollar to reduce the trade deficit. In 2008, during the peak of the financial crisis triggered by the bankruptcy of the largest U.S. mortgage bank, the dollar also dropped significantly. "However, in both cases, the depreciation of the dollar had systemic effects—imports decreased, exports increased, but inflation rose, and confidence in the dollar declined," said Vladimir Chernov, an analyst at Free Finance Global.
This historic decline in the dollar is due to Donald Trump's trade war. According to data from the Russian news agency RIA Novosti, recent tariffs imposed by Trump on some East and Southeast Asian countries will cost these countries' exporters nearly $94.3 billion annually.
"Imposing import tariffs on countries that have not signed new trade agreements has led to a large outflow of capital from the dollar, as investors begin to factor in the slowdown in global economic growth and the risks to U.S. exports. Additionally, with weak inflation and declining consumer confidence, market expectations of an imminent interest rate cut by the Federal Reserve further weakened the dollar," Chernov pointed out.
"The depreciation of the dollar is precisely the effect that Trump is seeking. If the goal is to revitalize industry and improve the efficiency of the economy, a strong currency would actually be a hindrance. Therefore, a weaker dollar is one of the key elements of the 'Make America Great Again' plan. In his previous term, Trump tried other ways, mainly aiming to devalue the Chinese yuan, but it did not succeed then, and the effects of the trade war were also poor. Now, it's simpler: Trump is doing what he says, and the dollar is likely to continue to weaken against various currencies," said Yulia Handoshko, CEO of European brokerage firm Mind Money (formerly "Tserekh").
The trend of the dollar's depreciation did not start in June, but rather began in early 2025.
"It's less about the impact of the trade war and more about the unpredictability of the U.S. government's actions. Yesterday, they announced tariffs, today they try to buy off the leadership of the Federal Reserve and force them to ease monetary policy, and what will they do tomorrow?"
Additionally, the government is clashing with universities, which are important service export institutions that play a positive role in reducing the trade deficit. In the financial sector, trust and predictability are crucial and irreplaceable resources. The current actions of the U.S. government are undermining people's trust in its financial institutions and currency, which is clearly reflected in the charts of the dollar exchange rate and Treasury yield, said Evgeny Goryunov, head of the Monetary Credit Policy Laboratory at the Gadzhi Institute.
Theoretically, the loss of trust in the dollar may reduce the trade deficit because imports become more expensive. But in practice, things are not so simple. "In theory, if the U.S. export industry and industries competing with imported products start to expand, this approach may work, but it requires more careful and thorough action. Because currently, neither investors, companies, consumers, nor politicians from other countries know what reckless actions the U.S. government will take in the near future. Uncertainty stifles investment: if it's unclear in a year, let alone five to seven years later, why invest heavily in production? Uncertainty leads to higher interest rates because the risk of U.S. fiscal issues has shifted from fantasy to a potential reality. Conflicts with the Federal Reserve will exacerbate inflation expectations, which will also push up interest rates. In short, if it's only the dollar's weakness, it might have a positive effect on the U.S. economy, but when this weakness is accompanied by inappropriate and unpredictable government actions, the chances of the plan succeeding are almost zero," Goryunov believes.
If global trade is hit, the U.S. will also struggle to achieve its goals.
"If trade conflicts drag down the global economy, increase global inflation, and slow global GDP growth, then U.S. exports will also decline. Therefore, a weak dollar without systemic reforms is not a solution but more like a temporary reprieve."
But in my opinion, Trump's tariff war and the new tax and budget bill are indeed systemic reforms aimed at reducing trade imbalances," Chernov said.
"No one knows whether Trump's policies will work or be beneficial to the U.S. economy. But regardless, we should all be prepared for an unstable period," said Handoshko. She believes there are a series of challenges, no one wants to solve them now, but instead passes them on to future generations. "The biggest challenge is the growing U.S. national debt. Previous presidents hoped the debt would decrease on its own, but reality is different: the debt keeps increasing, and the seemingly unshakable economic foundation over the past century is beginning to waver. For example, the divergence between short-term and long-term bond yields is a clear indication," she said.
In this situation, it is difficult to find beneficiaries. However, Chernov said that in the short term, countries with heavy foreign debt may benefit from a weak dollar, as it reduces their debt repayment costs. However, for resource-exporting countries like Russia, the situation is more complex.
"Prices for oil, metals, and other resources are traditionally priced in dollars. If the dollar depreciates globally, under the same conditions, the prices of resources priced in dollars may rise, theoretically compensating for the decline in the dollar's purchasing power. However, for the ruble, the situation is different. Under the same conditions, a falling dollar would lead to a reduction in Russia's export ruble income. For example, if a barrel of oil is sold for $70, and the dollar-to-ruble exchange rate is 80, then the revenue per barrel is 5,600 rubles. But if the exchange rate drops to 75, while the oil price remains unchanged, Russia's oil export revenue per barrel would be 5,250 rubles. This would hurt the budget, taxes, and export-oriented companies," Chernov explained.
This expert added that if resource demand continues to grow and oil prices remain high while the dollar weakens, it would be beneficial for Russia, but such a scenario is rare. Usually, a weak dollar reduces Russia's export ruble income and negatively affects its budget.
Original article: https://www.toutiao.com/article/7524991038088315446/
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