Comment by weatherlite
7 days ago
> If trade stops occurring in US Dollar
If I understand Trump correctly he wants a weaker U.S dollar to make American exports more attractive. I'm not sure though he wants it to become THAT weak that its on longer the reserve currency. However, simply abandoning the Dollar will prove quite difficult for many countries because there is no clear alternative (the Euro perhaps but it has a tiny market share currently) and also I'm certain Trump will threaten to remove American military support from anyone who dumps the Dollar - so Europe will probably stay, Australia, Canada, Saudi and quite a few more.
It's not "dumping the dollar" that would be a concern. It's bumping US federal treasury bills (the US debt) which are mostly held by China, the UK, Luxembourg, and Canada. If the latter three just dump their T-bills in retaliation (and do nothing else) the dollar will bottom out. Also, the likely buyer is China. End result: China owns the US and the RMB becomes the new reserve currency.
China would need to remove capital controls to make this work, and that seems unlikely.
The EU would need to issue eurobonds, and that also seems unlikely.
But then this whole decade has been one unlikely thing after another, so who knows?
> and also I'm certain Trump will threaten to remove American military support from anyone who dumps the Dollar - so Europe will probably stay, Australia, Canada, Saudi and quite a few more.
Europe already has the mindset US military support is no longer a given. Europe is already re-arming. I wonder if additional threats by the Trump administration are going to make much of a difference. Even though it will take atleast half a decade to re-arm the main adversary, Russia, is currently in no shape to launch any kind of new offensive against a European country.
> I'm not sure though he wants it to become THAT weak that its on longer the reserve currency.
Intentions aside, with big moves like these the question will be how much control he has over what happens next.
> Europe already has the mindset US military support is no longer a given. Europe is already re-arming.
As you said it will take at least half a decade (which sounds quite optimistic to me actually to go from barely any forces at all to independence) and then there are many more unsolved questions like where does Europe get all its energy from - Russia again? It will have to be a mix of U.S LNG and the rest I suppose from Arab/African countries. Or you could be right , and everyone will dump the USD - I think not though. Europe isn't in good shape as it is, I'm expecting more carefulness going forward.
BTW - I'm not advocating for anything here, I have no personal skin in the game and I think Trump is a horrible bully. I'm just not certain he's a complete idiot yet.
That's just economist flowery language for - If you're willing to work for less, more people would hire you.