The U.S. dollar is experiencing its most significant decline in decades, and experts attribute much of this to the trade policies implemented by President Donald Trump. According to Harvard University economics professor Kenneth Rogoff, the dollar is off to its worst start in half a century.
“I don’t think there’s any question that Donald Trump is a catalyst, and it may go much further with what he’s doing,” Rogoff told NPR’s Michel Martin.
The U.S. dollar index, which measures the value of the dollar against a basket of other currencies including the yen and the euro, indicates that the dollar has fallen by 10.8% in the first half of this year. This sharp decline has led to increased costs for Americans traveling abroad and heightened prices on imports.
Rogoff noted, “The dollar has been the talk of the global economy this year. Everyone’s worried about it. They’re talking about the fact that the dollar might not be used as much anymore. They’re worried about the U.S. budget deficit and what will happen. They’re concerned about Trump shutting off markets, which also makes it less attractive to hold dollars.”
He pointed out that such a significant drop in the dollar’s value has not been seen since the 1970s when President Richard Nixon ended the convertibility of the dollar to gold.
In an interview, Martin asked Rogoff why the dollar is so weak right now. Rogoff explained that while the dollar was notably high coming into the year, contributing to its current weakness, Trump’s policies have clearly played an important role in this decline.
“The trade wars, threatening to put taxes on foreign investment, generally making it seem like investing in the United States is not as safe as it used to be, is contributing to the dollar’s depreciation,” he said.
When asked whether the weakness is due to volatility or the policies themselves, Rogoff acknowledged the difficulty in analyzing exchange rates post-factum. He indicated that there seems to be a connection between Trump’s actions—such as attacking the chair of the Federal Reserve and ramping up tariff policies—and the decline of the dollar.
Martin further inquired if the president’s taxation and spending policies could also influence the situation. Rogoff affirmed that they definitely could.
“The dollar has been the king of the Hill for a long time. But at the same time, our debt policy is just off the rails. I mean, the debt is about to pass the post-World War Two record high as a ratio to income. It just doesn’t look like there’s a plan,” Rogoff stated.
He criticized President Trump’s reassurances, saying they downplay concerns about the debt. “Foreign investors are worried. I think he has accelerated a trend of moving away from the dollar being as important as it was. And that’s very costly if that happens over the long run,” he added.
Rogoff explained the varying effects of a weak dollar. He highlighted that exporters benefit from a weaker dollar since it makes American goods cheaper abroad, potentially boosting sales. For instance, one of the largest U.S. exports—services like insurance, consulting, finance, and intellectual property—could become more competitive in the global market.
However, he pointed out that farm workers who send remittances home to families in countries such as Mexico would find that money worth less when the dollar declines.
Thus, the impact of a weakening dollar largely depends on one’s economic position. Rogoff also emphasized that the dollar’s status serves as a referendum on how global investors perceive the overall strength of the U.S. economy.
“It’s absolutely true that how much they’re willing to hold dollars and at what price is a referendum,” Rogoff explained.
He noted that this ongoing dialogue about the dollar has been a significant topic within global economic discussions this year and may indicate a pivotal moment in economic history. The current events, he claims, parallel the situation in 1971, when Nixon ended the dollar’s gold convertibility, leading to economic turmoil in the 1970s.
Rogoff concluded, stating, “This is a very big deal. We have not seen anything like this since Nixon took us off gold. This could represent a major inflection point in the global economy and economic history.”
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