Donald Trump’s proposal to enforce dollar dominance in global trade has sparked concerns from a Commerzbank AG strategist. Ulrich Leuchtmann, the head of foreign exchange research at the bank, warns that Trump’s plan could have unintended consequences, potentially leading to economic disruption and even weakening the U.S. dollar.
Leuchtmann’s analysis considers a scenario where Trump’s threat to impose 100% tariffs on countries that avoid using the dollar becomes a reality. This threat was first made at a rally in Wisconsin on Saturday. Leuchtmann believes that such a move could significantly disrupt the global economic system.
He argues that Trump’s attempt to force dollar dominance could backfire, encouraging countries to move away from the dollar. This shift could have a negative impact on the safe-haven status of U.S. Treasury bonds and lead to a significant depreciation of the dollar.
However, Leuchtmann acknowledges that there are also arguments in favor of the dollar strengthening under a Trump presidency. He has been generally bullish on the dollar this year. Other strategists, including those at Morgan Stanley and Deutsche Bank AG, have previously argued that Trump’s focus on U.S. economic growth and tariff platform could result in a stronger dollar.
Despite the decrease in dollar dominance over recent decades, it still holds a significant share of official foreign-exchange reserves. As of the first quarter of 2024, the dollar accounted for 59% of these reserves, with the euro trailing behind at nearly 20% according to the International Monetary Fund.
Trump’s vow to maintain the dollar’s status as the world’s primary reserve currency was a central element of his presidential platform. However, concerns have been raised that his fiscal policies could undermine the dollar’s dominance. Trump’s economic legacy has become a topic of debate, with critics arguing that he inherited a strong economy from his predecessor, Barack Obama. Trump’s economic policies have also faced criticism in political campaigns, as exemplified by Vice President Kamala Harris’ recent advertisement criticizing these policies.
It remains to be seen whether Trump’s plan to enforce dollar dominance will be successful or backfire. The potential consequences of his actions could have a significant impact on the global economy and the future of the U.S. dollar.
