US Dollar on the Brink of Collapse? 6 Major Economic Worries Under Trump

US Dollar on the brink of collapse as it moves lower and weaker in global foreign exchange market, following Trump’s policies on tariff. 

WartaBerita.Net | WASHINGTON – The prediction of a weakening US dollar amidst Donald Trump’s controversial policies has raised significant concerns among investors and market players.

Based on accumulation on research and news compiled by WartaBerita.Net on this article, it outlines at least six key factors that could lead to a US Dollar on the brink of collapse, in which the decline in the dollar’s value and its potential impact on the global economy.

Six Key Factors Leading to US Dollar on the brink of collapse

Ineffective Tariffs and Protectionism

Trump’s tariff policies, aimed at protecting domestic industries, have sparked fears of disruptions in global supply chains. The COVID-19 pandemic has highlighted the vulnerabilities in these chains, and protectionist measures could trigger inflationary shocks that exceed previous estimates.

Underperforming US Economic Growth

Initially, Trump’s administration was buoyed by growth agendas such as tax cuts and deregulation. However, the current policy direction is marked by uncertainty. Inconsistent tariffs and fiscal policies may hinder growth, particularly if the Federal Reserve is compelled to maintain high-interest rates to combat inflation.

Rising Budget Deficits

With the deficit reaching 7% of GDP—even amidst low unemployment—the bond market is beginning to show signs of concern. If Trump’s plan to increase government spending without fiscal reform continues, the deficit could soar to 10% of GDP, risking a financial crisis or political turmoil in the future.

Erosion of International Rules and Institutions

The US dollar has long been viewed as a stable global currency due to trust in international laws and organizations like NATO, WTO, and WHO. However, Trump’s undermining of global institutions could shake worldwide confidence in the dollar. Beijing may also begin to question the US’s dominance in intellectual property protection.

Uncertain Immigration Policies

Tough measures against illegal immigration could trigger inflation in the agricultural and service sectors, both reliant on low-cost labor. The lack of consistent and clear policies creates ongoing uncertainty that plagues the market and exacerbates dollar depreciation predictions.

Threats to Federal Reserve Independence

Although considered a tail risk, court rulings allowing Trump to dismiss senior officials from federal agencies may lead to potential interference with the Federal Reserve. A compromised Fed, replaced by political loyalists, could subject the US dollar to significant pressures from overly loose monetary policies.

The Dollar’s Weakness in the Face of Uncertainty

The future of the US dollar largely depends on the direction of Trump’s government policies. A combination of protectionism, high fiscal deficits, weakening international institutions, and threats to central bank independence poses a substantial risk to the dollar’s appeal as a global safe asset. It eventually could lead to a US Dollar on the brink of collapse.

Investors and market participants are advised to closely monitor US fiscal and monetary policy directions and their implications for exchange rates and global stability. [WB]