Quick Note: Trump's Collision Course With USD Weakness

“A weak dollar and plentiful, cheap energy could power a boom. A strong dollar should emerge by the end of his term if the US reshoring effort is successful.”-Scott Bessent Jan 2024

Trump’s Policy Path Beyond Tariffs

In order for Trump’s economic policy goals can be divided into 2 broad areas: Domestic, and International.

DOMESTICALLY: He wants one (big) thing.

To redirect economic investment towards manufacturing while reducing gov’t bloat-spending.

He has 3 basic tools to do so:

1. Plausible means to lowering spending and raising revenues- DOGE plus Tax cuts
2. Stable cheap energy- watch post UKR summit, Drill baby drill etc
3. Weaker USD now for stronger USD later1- Tariffs only make that harder

Bessent has said as much before nomination.

INTERNATIONALLY: He also wants only one big thing

For the US to come to the negotiating table with China on stronger footing than the US currently has been. 2

Here's his toolbox to do that:

1. Negotiate EU/ ME Peace on favorable terms
2. Using Tariff (carrot/stick horse trading) to dissuade other nations from further aligning with China before the big face-off

Given the above:

The harder it is for Trump to execute his plan with the tools listed— almost all of which in some way need cooperation from others in olved—The more likely he will default to the weaker dollar as tool in combination with keeping Oil prices down.

Why? It’s the only real thing he can control without cooperation that has domestic and international uses.

The simplest thing to do (not the best) is manipulate the USD with or without Powell's help (e.g. fiscal stimmies.. The Doge Dividend being discussed now) for short-term support while he “works the room” on the other things.

As macro traders, we believe to the extent Trump comes up short on other tools in his toolbox, we get a weaker dollar.

• If the economy weakens (from tariffs etc), a weaker dollar.
• Can’t manufacture goods for export in a world where exports matter again? — the dollar weakens to get exports up
• Interest rate costs cannot be lessened? We get lower rates/ weaker USD
• If stocks drop, the dollar will get weaker to boost them.

Here’s that Bessent quote in context

“Another differentiated view that we have is that Trump will pursue a weak dollar policy rather than implementing tariffs…. Weakening the dollar early in his second administration would make U.S manufacturing competitive. A weak dollar and plentiful, cheap energy could power a boom. … A strong dollar should emerge by the end of his term if the US reshoring effort is successful.”

Therefore: the harder it is for him to accomplish his goals through horse-trading and threats, the more likely a weaker USD will occur, and likely the higher Gold goes.

So far Trump has tabled almost blanket/national tariff threat announced.... they will not work as currently presented.

Now he’s working on individual items... Aluminum etc.

Every thing he pulls back on (delays/negotiates/stops discussing publicly) is a nail in the USD coffin

Tape Watching Comment:

Watch the USD. Going forward— If it drops on peace breaking out, Gold should also decline and Stocks should rally. Bullish for Trump

Continues here 

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