When Trump first ran for president in 2016, he campaigned to bring back jobs to the Midwest, also known as the Rust Belt. This region was traditionally known for manufacturing industries, which shut down over time, leaving people unemployed. President Trump won majorly due to the votes from the Rust Belt. His message resonated soundly with the people living there.

Trump believed that bad trade deals had cost the people of Wisconsin, Michigan, Ohio and Pennsylvania. Due to this view, he set out to impose tariffs to bring back manufacturing to the United States. His strategy partly worked, with some jobs returning to the country. However, there were retaliations from China, and some imported inputs hurt farmers in the United States. China was slapped with punitive tariffs for intellectual property theft and trade imbalance, while Europe, Mexico and Canada had steel and aluminium tariffs imposed.

The North American Free Trade Agreement (NAFTA) with the US, Canada, and Mexico eliminates tariffs between the three countries, allowing companies to operate freely across them.  NAFTA was renegotiated into the United States-Mexico-Canada Agreement (USMCA) to provide stronger protections, especially regarding Intellectual property, labour, and environmental issues.

In his second term, Trump upped the ante by introducing a 10% universal tariff on all imports without referencing World Trade Organisation (WTO) norms. The President is driven by the need to put the United States first by raising revenue to spread the burden of the US dollar as a reserve currency.

This often leads to trade imbalances as other countries keep U.S. dollars in their central banks as a safety net, which the US continues to spend more than it earns. Trump also wants to ensure that other countries pay for the protection offered by being allied with the U.S. Additionally, he wants to protect domestic priorities, particularly by securing supply chains for U.S. companies and ensuring they can access raw materials without relying on other countries.  Like his first term, Trump wants to rebalance trade and investment in the US. 

Even before the White House, Trump was known for seeking to cut deals in his business dealings, a trait he has carried into his presidency. To lower tariffs, the U.S. is expected to demand that other countries grant U.S. goods and services similar access and negotiate for other concessions, including accepting weapons and getting into the military.

 Given the US’s high protectionism, global trade is likely to be affected mainly by retaliatory tariffs. The uncertainty created will likely lead to fewer investments and, eventually, less spending. The financial system will then face more savings and less loan growth as people seek to protect themselves. 

The impact of Trump’s policies has already been felt. Usually, when Investors get nervous, they buy the U.S dollar and US government bonds. This pushes the dollar rate up and interest rates down. However, in this case, the inverse is happening. The U.S. dollar is weakening, the interest rate is down, and investors are still nervous.

 In late 2024, U.S. tariffs caused concern about the inflation rate, leading to the expectation that the Federal Reserve would raise interest rates to cool things down. However, in the current scenario, tariffs are hurting U.S. growth, and oil prices have dropped, lowering inflation.

For this reason, investors believe that the Federal Reserve will cut interest rates instead of raising them, leading to a fall in the U.S. dollar’s value. Other factors pushing the currency down are the rising Yen and Euro as investors shift their money from risky to safe havens, and Germany is seen as one. Inflation expectations in the U.S. are that it will remain low, further weakening the dollar. 

These developments with the dollar are not new, as big drops happen often, and the Yen and Euro will not keep rising. The Yuan is also likely to weaken; when that happens, it hurts smaller economic countries and leads to a stronger dollar. However, there are warning signs. For example, if the U.S. interest rates continue to move in opposite directions, the country will have trouble selling government bonds, and other economies will start pulling out of the dollar system.

Pressure on the Yuan will be tremendous due to the tariffs. The situation continues to evolve with Trump and China. The dollar gained on April 25, 2025, against major currencies, clawing back at earlier losses as indications emerged that China is considering dropping some tariffs against certain U.S. goods. However, long-term concerns persist, and the Deutsche Bank has warned of long-term repercussions as other countries continue to be uncertain about the US dollar. These experts think the US dollar will lose value over time and believe that the euro might get stronger, eventually worth about $1.30 for every U.S. dollar before the decade ends.

 This article is a summary of a BMI webinar which was held on April 15, 2025.

Fact Box 

Key developments:

• Late 2024: Tariffs were seen as inflationary, boosting the U.S. dollar due to expectations of higher interest rates.
• Early 2025: View shifted – tariffs now seen as growth-negative, and lower oil prices led to expectations of lower interest rates, weakening the dollar.

Factors impacting the U.S. dollar:

• Rising U.S. bond yields combined with a weaker dollar, a rare combination.
• JPY and EUR strength, with the Yen rising due to carry trade unwinding and the euro gaining due to shifts in U.S. equities.
• Falling U.S. inflation expectations are lowering the need for rate hikes.

Watch for:

•         Divergence between U.S. bond yields and the DXY (U.S. Dollar Index).
•         Weak Treasury auctions signal a lack of confidence.
•         Global move from the USD, with more investments in non-USD assets.