Trump has the upper hand since the U.S., the primary buyer in a world of ample supply, has the advantage over the seller, China. Besides, where else could China sell $534 billion in products it sent to the U.S. last year? The pragmatic Chinese will no doubt import more U.S. products, demand less technology transfers as the price American firms pay for operating in China and steal fewer U.S. trade secrets.
That will reduce the chronic U.S. trade and current-account deficits. The $500 billion current-account deficit is the number of dollars the U.S. pumps into foreign hands. Some 87 percent of all global transactions involve the U.S. dollar. So a lower deficit will result in a global dollar shortage and a higher value for the greenback will no doubt result.
Meanwhile, the Federal Reserve is shrinking its balance sheet assets at an accelerating pace. One byproduct of the Fed’s decision to cut its holdings of Treasuries and government-related securities is that it absorbs dollars from domestic and foreign investors, further reducing the supply of greenbacks.
One of David’s maxims that is most memorable in this currency market environment is “No country wants a strong currency, but some need a weak one more than others” President Trump has made no secret of his desire to have a weaker currency but Europe and China need weaker currencies more.Click HERE to subscribe to Fuller Treacy Money Back to top