February 24, 2017 Patrick Oliver-Kelley

The dollar is the world’s principal anchor currency, and the dollar standard is one of the most vulnerable pillars of global stability. It has grown more important as the world has globalized. After The fracturing of this system under inflationary pressures in the 1970-80s, the dollar became more central than ever. As markets opened to international trade, markets sought stability and turned to the dollar. Global reserves now are more than $10 trn. Dollar denominated assets for much of those reserves. Despite their reserve holding, many economies have lost control of their domestic monetary policy because of US Fed policies on global appetite for risk. Many governments hold large amounts of safe but low-yielding dollar assets. This allows America to run persistent current-account deficits.


This is a privilege America has but Trump seems eager to discard. The current-account gap underlying financial flows, and taxing imports will simply cause the dollar to rise in an offsetting fashion. The dollar should share its role with other currencies. but the yuan, China’s currency, is inhibited by unreliable statistics and tight limits on Chinese financial markets. Increased dependence on China is not attractive. The euro is constrained by existential political risks and the scarcity of safe euro-denominated bonds. Should Trump’s efforts to ‘Make America Great Again’ through tax cuts and spending, the deficits will increase and inflation will rise, and American assets might lose their luster. Lookout for soaring prices and soaring interest rates. Alternatively, the dollar might go the way of the inter-war gold standard. Governments would put up tariffs and then withdraw from the system altogether through the erection of capital controls. Trump supporters, be careful what you wish for!

If you look at the great companies driving the US as an innovation hub, you will see that many companies were started by immigrants or the children of immigrants, like Apple and Google. Steve Jobs, whose father was a Syrian refugee and Sergey Brin who was born in Moscow, for example. Though immigrants make up about 13 percent of the US population, they contribute nearly 15 percent of the nation’s economic output. “It is an undeniable privilege for every man to prove himself right in the thesis that the world is his enemy,” wrote diplomat George Kennan. “For if he reiterates it frequently enough and makes it the background of his conduct, he is bound eventually to be right.” Few world leaders embody this ethos than Donald Trump and the Iranian Supreme Leader Ayatollah Ali Khamenei. Trump’s demonizing NAFTA helped him to the presidency, but in reality millions of jobs are supported by that pact.


Cummins Engine, an Indiana founded company, exports over three fourths of its US engine production, and has sales in 190 countries. America offers lower shipping costs and less red tape when exporting and most importantly, has lower and fewer custom duties when components are imported from cost-effective suppliers, and add on, access to American trained engineers. Cummins runs a vast supply chain to and from Mexico. Cummins representatives say, “Our jobs overwhelmingly exist because of trade. We are not in a regional economy, we are global.”
The flipside to selling to so many countries is that Cummins cannot simply manufacture in one place, they must know local markets and local conditions. “If you are good at exports but not with imports, generally speaking, most people will not strike the deal with you,” said a Cummins executive. Trade must be made to work and workers must be convinced that they have a place in today’s economy.

Recently, Trump brought two dozen manufacturing CEOS to the White House to encourage them to committing to restoring factory jobs lost to foreign competition. These CEOS suggested that there are plenty of openings for US factory jobs, but too few American candidates are sufficiently qualified to fill them. The men and women who show up on our shores and our doors are ready to study, work and participate to make us stronger, smarter, more competitive and more attuned to the rest of the globe. Trump has, thus far, failed to mention these facts.

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