Donald Trump is the only one threatening the dollar

It’s that commitment to the rule of law that draws capital from around the world to the US in good times and bad. Foreign holdings of US Treasury securities have surged by $1.14 trillion since the end of 2020 through June, better than the $1.07 trillion under all four years of Trump. It’s why the Bloomberg dollar index has strengthened 10.2 per cent under the Biden administration after weakening 11.6 per cent under the Trump administration. It’s why the MSCI USA Index of equities has surged 42 per cent since the end of 2020, almost 17 times the gain of the MSCI All-Country World Index excluding the US.

What Trump conveniently neglects to mention when it comes to the dollar is how much damage he did to it while president. Erratic and unpredictable policies, both domestic and foreign, along with periodic threats on the ideals that underpin the rule of law created a crisis of confidence in America as a stable place to invest. The dollar’s share of global currency reserves tumbled from 65.4 per cent when he took office at the start of 2017 to 60.7 per cent when he left at the end of 2020 — which was the lowest since 1995. Under Biden, the dollar’s share of has stabilised, amounting to 58.9 per cent at the end of the first quarter.

Even so, Trump’s “100 per cent tariff” plan on countries that shun the dollar contains a fatal flaw. It’s possible that such prohibitive tariffs could have the opposite of their intended effect and drive the countries away from the greenback, threatening the haven status of US Treasuries and “lead to massive dollar weakness,” Ulrich Leuchtmann, the head of foreign-exchange research at Commerzbank AG, wrote in a research note Monday. Trump wants to “force dollar dominance. That changes everything,” Leuchtmann wrote. “If the US were to impose prohibitive tariffs across the board, they would cause massive disruption to the global economic system.”

Like Don Quixote, who attacked windmills in the mistaken belief that they were wicked giants, Trump is known for assailing imaginary enemies or evils. But at least Quixote, after various humiliations, finally came to realize the folly of his quest and returned home. Trump has yet to reach that point.