debut: 2/16/17
38,910 runs
In reply to SnoopDog
Snoopy, your question asked above is complex, it examines how economic policy, currency valuation, and global trade dynamics interact.
My explanation and the theory behind such a strategy—and some of its inherent contradictions.
The Theory Trump Advocates
Donald Trump's trade policy during his presidency emphasized reducing trade deficits by prioritizing domestic manufacturing. By implementing policies like import duties, renegotiating trade agreements (such as NAFTA to USMCA), and providing incentives for domestic manufacturing, his administration seeks to accomplish this. The underlying goal was to encourage companies to bring manufacturing back to the U.S. and reduce reliance on foreign goods.
The idea was that by producing more goods domestically, the U.S. could reduce its trade imbalances, particularly with countries like China, which has historically maintained a trade surplus with the U.S.
The Contradiction with a Strong Dollar
Here’s where the problem arises. The U.S. dollar, as the world's reserve currency, tends to remain strong because of global demand for dollars in trade, investment, and as a safe-haven asset. A strong dollar reduces the competitiveness of U.S.-made goods on the international market by making them more expensive for other nations to buy. This creates a fundamental tension in the strategy:
Strength of the Dollar: If the U.S. dollar remains high in value, U.S. exports become pricier for foreign buyers. Countries searching for less expensive options are more likely to purchase goods from countries with weaker currencies and more reasonably priced goods, such as China or Mexico.
Trade Deficits: A strong dollar naturally makes it harder to reduce trade deficits because it encourages imports (foreign goods are cheaper for Americans to buy) while discouraging exports (U.S. goods become too expensive for other countries).
How Could This Work in Theory?
For Trump’s strategy to succeed, a few things would need to happen simultaneously:
Protectionism: Trump sought to increase the cost of foreign goods for American consumers by enacting tariffs on imports, which would compel them to buy domestically made goods instead. Regardless of currency value, this generates a fictitious demand for domestically produced goods.
Domestic Consumption Focus: If the U.S. relies less on exports and focuses on fulfilling domestic demand, then the strong dollar matters less. The idea would be to create a self-sufficient economy where Americans buy primarily U.S.-made goods, reducing reliance on cheaper foreign imports.
Selective Export Markets: Certain industries, like high-tech or luxury goods, are less sensitive to price. The U.S. could focus on exporting high-value products where the strong dollar has less impact because buyers are willing to pay a premium (e.g., Boeing airplanes, advanced technology, pharmaceuticals).
Challenges to the Theory being a unique module in Economics
Global Trade Realities: Forcing domestic manufacturing does not guarantee competitiveness. Labour costs in the U.S. are significantly higher than in many developing countries, and without advanced automation or subsidies, U.S.-made goods remain expensive.
Retaliatory Tariffs: The market for American exports was further diminished when other nations could (and did) impose their own tariffs in retaliation on American goods.
High Dollar Dependency: The U.S. benefits from a high dollar because it makes borrowing cheaper and sustains its role as the global reserve currency. This, however, runs counter to the objective of increasing the competitiveness of American goods abroad. Weakening the dollar intentionally would undermine global confidence in the currency.
Global Supply Chains: Modern manufacturing often depends on international supply chains. Forcing everything to be made domestically could disrupt industries reliant on cheaper foreign inputs, increasing costs for American companies and consumers.
Why Would Other Countries Buy U.S. Goods?
The key here is that it’s not just about price. U.S. goods tend to be competitive in areas where quality, innovation, and brand value outweigh cost concerns. For example:
Advanced technology (e.g., semiconductors, AI tools)
Pharmaceuticals and medical equipment
Aerospace and defense products
High-end consumer goods (e.g., Apple products, luxury brands)
However, for more price-sensitive industries like textiles, consumer electronics, or general manufacturing, other countries would be less inclined to buy U.S.-made goods with a strong dollar. Trump’s plan hinges on the idea of reshaping the U.S. economy to focus on self-reliance and domestic demand while selectively targeting export markets for high-value goods.
However, the inherent contradiction between promoting domestic manufacturing and maintaining a strong dollar makes it difficult to achieve both goals simultaneously. In reality, the strategy would likely require either tolerating a weaker dollar (to boost exports) or accepting that the trade deficit might persist due to the structural advantages of cheaper foreign goods.
This delicate balancing act is much easier to imagine than to execute in practice.
My explanation... Sarge
Note: No one in Trump's cabinet is intelligent enough to think of such a risky theory; where did this come from???
Honestly, it’s hard to see this theory working fully in practice, at least not without significant trade-offs that might undermine the very goals it’s trying to achieve.
