Trump's tough trade stance could undercut his plans for a weaker dollar

Trump wants both trade barriers and a weaker dollar. But raising tariffs typically creates a stronger greenback, Barclays Ajay Rajadhyaksha said.

• Donald Trump wants a weaker dollar in order to boost exports for US manufacturers.
• But his tariff proposals would cause the opposite: a stronger greenback, a Barclays analyst said.
• Other ways Trump could weaken the dollar would also risk raising US debt or inflation, Barclays said.

Donald Trump's proposed policies run counter to one another, with his plan to increase trade tariffs complicating his intent to weaken the dollar, Ajay Rajadhyaksha of Barclays wrote in the Financial Times.

In a Bloomberg interview last week, the Republican presidential candidate explained that the dollar's recent strength has hampered US businesses and made exports more expensive.

"That's a tremendous burden on our companies that try and sell tractors and other things to other places outside of this country. It's a tremendous burden," Trump told Bloomberg.

Since March 2020, the greenback is 5% stronger than the Chinese yuan, 15% higher than the Indian rupee, and 50% above the Japanese yen, according to Barclays.

Meanwhile, Trump has has frequently touted plans to implement universal tariffs on all US imports in an attempt to make America more competitive on trade.

But when tariffs are raised, they actually usually cheapen the currency of impacted countries, Rajadhyaksha cautioned:

"The reality is that weakening the dollar runs counter to many of the Trump campaign's other goals, such as tariffs and cutting taxes (tax cuts should push up growth, which is normally dollar — positive)," he said.

Other options for weakening the dollar exist, but none come without consequences, the strategist noted.

For instance, the Federal Reserve could buy sovereign bonds from other nations, adding dollars into global circulation. But increasing the central bank's balance sheet risks inflation, and is not something the Fed is likely to go along with, Rajadhyaksha said.

He cited alternative plans: raising US debt could help, at the cost of Treasury market volatility and more inflation pressure.

Otherwise, enlisting other countries to help devalue the dollar is unlikely to gain much support. The last time the US did so under the 1985 Plaza Accords, it created decades of stagflation for Japan, Rajadhyaksha said.