#WeakDollar

[moneytower]

What Are Trump’s True Objectives Behind the Tariff Policy?

President Donald Trump implemented significant tariffs on Mexico, Canada, and China, prompting these nations to retaliate with their own tariffs. This escalation resulted in a tariff conflict that raised import costs, drove up consumer prices, and placed additional strain on businesses. Some analysts even propose that Trump may have deliberately instigated an economic slowdown. But what was his underlying aim?

What Was Trump’s True Aim?

Trump’s objectives might have extended beyond merely engaging in a tariff conflict. His approach likely sought to lower interest rates, devalue the dollar, and rejuvenate American manufacturing.

At present, the yield on U.S. 10-year Treasury bonds exceeds 4%, while the national debt continues to rise. A reduction in interest rates would alleviate the government's debt interest burden, and a weaker dollar would enhance the competitiveness of U.S. exports.

To facilitate this, Trump exerted pressure on the Federal Reserve to cut interest rates by intentionally slowing economic growth. Concurrently, a devalued dollar would benefit U.S. exports and stimulate American manufacturing. Most crucially, he aimed to align the economic recovery with the latter part of his presidency to claim credit for it.

Historical Precedents

Previous U.S. presidents have employed similar tactics to bolster American industries.

- Ronald Reagan (1980s): Reagan safeguarded U.S. manufacturing by limiting Japanese car imports. Initially, he supported a strong dollar but later consented to its devaluation through the Plaza Accord, which aided American exports and compelled Japanese car manufacturers to relocate production to the U.S.

- Richard Nixon (1970s): Nixon introduced the Nixon Shock in 1971, which ended the gold standard and devalued the U.S. dollar. This move made American exports more competitive, reduced trade deficits, and stimulated domestic manufacturing.

Companies That Gained from Similar Approaches

When past presidents implemented comparable policies, certain companies capitalized on these changes and experienced growth.

1. General Motors (GM) and Ford: Reagan's trade policies on Japanese automobiles helped American manufacturers keep their market presence and even grow.

Caterpillar: Following the Plaza Accord, which devalued the dollar, American machinery companies like Caterpillar found themselves with a stronger position in international markets.

Boeing: Nixon's dollar depreciation policies allowed American aircraft manufacturers, particularly Boeing, to thrive as their planes became more affordable for international customers.

If Trump's policies mirror these historical approaches, U.S. manufacturing and export businesses today might also discover avenues for expansion.

How Should We Respond?

If Trump's approach resembles previous strategies, a potential economic slowdown could present investment prospects in U.S. manufacturing firms focused on exports. It's essential to dig deeper than just the visible policies and grasp the underlying motives behind them.

Economic patterns are not coincidental; they are shaped by policy choices. Recognizing the deeper implications of these policies is crucial for making informed investment decisions. Let’s keep analyzing economic trends together and seek out new opportunities.