The Potential of Trump’s Policies to Preserve the US Dollar

Donald Trump’s 2024 presidential campaign has brought the potential demise of the US dollar’s world reserve currency status into sharp focus. His pronouncements on this issue, delivered at influential gatherings like the New York and Chicago Economic Clubs, carry a unique weight. While acknowledging the very real threat to the dollar’s dominance, a position often dismissed by establishment figures, Trump simultaneously expresses a desire to maintain its global standing. This places him in an unusual position: a prominent, albeit non-traditional, political figure who recognizes the fragility of the dollar’s position yet seeks to preserve it. His stance, therefore, serves as a potent counterargument against those who either deny the possibility of a shift in global currency dynamics or remain blissfully unaware of the ongoing transformations. His concerns, even if motivated by a desire to preserve the existing order, lend credibility to the arguments of those who foresee a decline in the dollar’s influence, challenging the often-asserted narrative of its unshakeable dominance.

While the decline of the dollar’s reserve status is not an immediate threat, dismissing the mounting evidence of its weakening position is equally misguided. Several significant events point towards a gradual erosion of the dollar’s global dominance. These include the increasing willingness of nations like Saudi Arabia to conduct oil trade in currencies other than the dollar, the BRICS nations’ efforts to establish alternative payment systems, and China’s strategic reduction of its US Treasury holdings. These developments, while not individually catastrophic, collectively represent a substantial challenge to the dollar’s long-term supremacy. Ignoring these trends amounts to a dangerous form of wishful thinking, as they cumulatively represent a significant shift in the global financial landscape. The narrative that the dollar’s position is unassailable simply does not align with the observable realities of evolving international trade and finance.

Given Trump’s stated desire to preserve the dollar’s global dominance, the question becomes: can he realistically achieve this goal? Two broad approaches present themselves: competent management and aggressive enforcement. Competent management would entail curbing inflationary pressures by controlling the creation of new money, a measure crucial for stabilizing global economies still reeling from recent inflationary shocks. It would also involve a more judicious and less ideologically driven application of dollar-based sanctions, recognizing that overuse can incentivize targeted nations to seek alternative financial arrangements. The aggressive approach, on the other hand, relies on threats of economic or military repercussions against countries that move away from the dollar. This strategy, however, risks exacerbating the very trends it seeks to reverse, as evidenced by the fallout from the sanctions imposed on Russia following its invasion of Ukraine.

Trump has hinted at both approaches, but his preference seems to lean towards using tariffs as a lever to discourage nations from abandoning the dollar. This aggressive tactic, however, is likely to be counterproductive, accelerating the very de-dollarization trend it aims to prevent. A return to more prudent dollar management, reminiscent of earlier eras, might offer a temporary reprieve, slowing the pace of de-dollarization but unlikely to halt or reverse it. The underlying shift in global sentiment towards the dollar is too profound to be easily reversed. Numerous nations now view reducing their dependence on the dollar as a matter of strategic importance, a perspective unlikely to change regardless of US policy adjustments. They might prefer a gradual and managed transition, but their commitment to diversification remains firm.

Therefore, regardless of Trump’s intentions or the specific policies he might pursue, completely arresting the process of de-dollarization appears to be an insurmountable challenge. But a more fundamental question arises: is preserving the dollar’s reserve status even a desirable goal? While the immediate economic consequences of a decline in the dollar’s global role could be painful for the American public, markets possess the inherent capacity to adapt and recover relatively quickly. Furthermore, mechanisms exist to stabilize the currency, such as adjusting the gold-to-dollar ratio under a hard gold standard, as advocated by economists like Murray Rothbard. Such measures could effectively mitigate the negative impacts of a decline in the dollar’s international standing.

While striving to maintain the dollar’s reserve status might seem like a noble endeavor aimed at protecting American prosperity, clinging to the current system of a fiat dollar controlled by the Federal Reserve is akin to prolonging a slow and ultimately inevitable decline. This system, characterized by the ability to create money out of thin air, fuels excessive government spending on welfare programs and military interventions, while simultaneously hollowing out American industry through financialization. It undermines genuine wealth creation and fosters an unsustainable economic model. The longer this system persists, the deeper the rot sets in, and the more devastating the eventual collapse will be. Therefore, focusing on preserving the existing system, despite its inherent flaws, ultimately harms the very interests it purports to protect.

This brings us to the crucial issue of institutionalism, the tendency to cling to existing institutions even when they no longer serve one’s interests or even actively work against them. This often manifests in a preference for reforming flawed institutions rather than dismantling them. However, failing to recognize when an institution has become irrevocably opposed to one’s goals can lead to wasted efforts and even unintentionally undermine one’s own agenda. In the case of Trump’s stated goal of revitalizing the American economy for the benefit of its people, the Federal Reserve and the fiat dollar system it supports are arguably such institutions. Attempting to reform or reinforce them is unlikely to achieve the desired outcome of genuine and lasting economic revitalization. While short-term improvements might be possible, true systemic change requires a more radical approach.

Instead of focusing on preserving the status quo, a more prudent course of action for any future administration would be to develop a strategic plan for transitioning away from the fiat dollar as the global reserve currency and towards a gold-backed dollar. This would entail a national policy of a 100% gold-backed dollar, allowing other countries the freedom to determine their own monetary policies. Such a transition, while potentially challenging, offers the potential for significant long-term benefits for both the American economy and international relations. It would address the fundamental flaws of the current system and create a more stable and sustainable foundation for future prosperity.