With the US midterm elections approaching on November 3, a strengthening dollar is exposing a major contradiction in President Donald Trump’s economic agenda. While the administration wants to weaken the currency to boost American manufacturing and exports, financial markets are pushing the dollar in the opposite direction.
The currency’s recent rise comes at a politically difficult moment for Trump. Public approval of his economic management has weakened, with voters increasingly concerned about living costs, inflation and the impact of tariffs. Betting markets have also pointed to the possibility of Republicans losing control of the House of Representatives and potentially the Senate.
Yet the dollar has recently reached its strongest level in 18 months against major currencies, reflecting both continued demand for US assets and growing economic and fiscal concerns elsewhere.
The contradiction presents a challenge for the White House. A stronger dollar can signal confidence in the US economy, but it also makes American exports more expensive for foreign buyers and imported goods cheaper for US consumers. That runs counter to Trump’s efforts to revive domestic manufacturing, reduce the trade deficit and make American products more competitive internationally.
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Why Is the Dollar Rising Despite Trump’s Trade Deficit?
The dollar’s appreciation appears particularly striking because the US trade balance has not improved as the administration intended. Imports have surged to record levels, partly driven by American companies purchasing the chips, equipment and other goods required to expand artificial intelligence infrastructure.
The US trade deficit stood at approximately 2.7% of gross domestic product earlier this year, one of the lowest readings of the century. However, Dean Maki of hedge fund Point72 has warned that it could rise to 4% of GDP next year.
Despite these imbalances, the dollar has recovered from the weakness it experienced during Trump’s first year back in office, when tariff uncertainty and concerns about the erosion of confidence in American assets encouraged some investors to reduce their exposure to the United States.
The reversal reflects the relative nature of currency markets. Investors do not evaluate the dollar in isolation; they compare the economic and financial prospects of the United States with those of other major economies.
France faces mounting pressure over its public finances, with investors concerned about the government’s ability to implement politically difficult budget reforms. Japan, meanwhile, is contending with concerns about its enormous public debt and the implications of higher interest rates for debt servicing.
As a result, the dollar is benefiting partly from weaknesses in competing currencies. Continued investment in American artificial intelligence companies has provided another source of support.
This creates an uncomfortable situation for Trump: the dollar can strengthen even when aspects of his trade policy are moving in the opposite direction.
What Is Trump’s Plan for a Weaker Dollar?
Trump and Treasury Secretary Scott Bessent have signalled a preference for a weaker dollar, although this presents a challenge for an administration operating within a longstanding tradition of supporting a strong US currency.
The intellectual foundation for this approach can be traced to a 2024 paper titled A User’s Guide to Restructuring the Global Trading System, written by Stephen Miran, who later chaired Trump’s Council of Economic Advisers and briefly served as a Federal Reserve governor.
Miran’s paper argued that the dollar’s persistent overvaluation disadvantages American manufacturing by making US exports more expensive and imports cheaper. The approach has become associated with the proposed Mar-a-Lago Accord, a reference to Trump’s Florida residence and the 1985 Plaza Accord, through which major economies coordinated efforts to lower the dollar’s value.
The broader objective is to reshape international trade and financial arrangements in ways that reduce the competitive disadvantages facing American manufacturers.
A weaker dollar could help US exporters compete abroad and make domestically produced goods more attractive relative to imports. Over time, that could support Trump’s ambition to rebuild manufacturing capacity and reduce reliance on foreign suppliers.
However, currency depreciation also carries risks. A weaker dollar makes imported goods and some internationally traded commodities more expensive for American consumers and businesses, potentially adding to inflationary pressures.
The administration therefore faces a difficult balancing act: lowering the dollar enough to support manufacturing without triggering market instability or worsening household costs.
Why Could Inflation Undermine Trump’s Economic Agenda?
The political consequences of this currency dilemma extend beyond trade policy.
Although the US economy continues to expand and unemployment remains relatively low, households are facing pressure from several directions. A New York Federal Reserve study cited in the original report found that tariffs have raised the cost of imported goods, while the war with Iran, launched in February, has driven up energy prices, including diesel.
Persistent inflation has added to concerns about the cost of living. Higher bond yields have also increased financial pressures, while falling real wages have weakened households’ purchasing power.
These conditions complicate Trump’s efforts to persuade voters that his economic policies will deliver tangible improvements.
A weaker dollar could eventually support domestic production and exports, but those benefits would take time to materialise. Higher import prices, by contrast, can affect businesses and consumers more quickly.
With the November 3 midterms approaching, the administration has limited time to demonstrate that its economic strategy is improving living standards. Voters may be unwilling to wait for the longer-term benefits of a restructured trade system if their immediate expenses continue to rise.
The central political question is whether Trump can convince Americans that the short-term costs of his policies will produce lasting economic gains.
Can Trump Weaken the Dollar Without Global Cooperation?
Engineering a sustained decline in the dollar will be difficult, particularly given the administration’s preference for bilateral negotiations and its broader America First approach.
Historically, major changes in the dollar’s value have often involved coordinated international action. The 1985 Plaza Accord brought leading economies together to reduce the dollar’s value, while the 1987 Louvre Accord sought to stabilise exchange rates after the subsequent depreciation.
Such agreements depended on cooperation among major economic powers, a model that sits uneasily with Trump’s emphasis on unilateral action and bilateral deals.
More limited interventions remain possible. Recent US Treasury action involving Japan to support the yen illustrates one avenue for addressing currency pressures, although isolated interventions may have limited lasting effects if underlying economic conditions continue to favour the dollar.
Stephen Jen, chief executive of Eurizon SLJ Asset Management, has suggested that repeated, targeted interventions could gradually weaken the dollar without provoking a sharp market reaction. However, their effectiveness would depend on their scale, frequency and credibility.
There are also significant historical constraints. Coordinated interventions to influence major exchange rates have been relatively rare, and the last broad international efforts to reshape the dollar’s value occurred decades ago, under economic and geopolitical conditions very different from those of today.
Without wider cooperation, the administration could struggle to achieve a sustained currency adjustment while preserving investor confidence in US financial markets.
What Does the Dollar’s Strength Mean for Trump’s Midterm Prospects?
The dollar’s appreciation highlights the gap between the administration’s economic ambitions and the forces shaping global markets. Trump wants a currency that supports manufacturing and exports, but investors are responding to relative economic prospects, demand for American technology assets and concerns about competing economies.
That tension could become increasingly important as voters assess the administration’s record. A strong dollar may reflect continued international demand for US assets, but it does not necessarily mean households are experiencing stronger purchasing power or that the trade deficit is moving in the desired direction.
For Trump, the challenge is to translate financial-market strength into economic outcomes that voters can feel, including more affordable living costs, stronger real wages and sustainable employment opportunities.
The November 3 elections will test whether Americans are prepared to give the administration more time to pursue its economic restructuring agenda. If household pressures persist, the president may find that the benefits of a strong dollar offer little political protection.
Ultimately, the dollar’s trajectory will depend on global capital flows, interest-rate expectations and the credibility of US economic policy. But its political significance is already clear: the currency that Trump wants to weaken may become an unwelcome measure of the limits of his economic strategy.
With information from Reuters.
