Trump’s aggressive economic policies are making everyone worse off. But they arguably harm the US most. Tariffs drive up prices, weaken the US Dollar and trust in US treasuries while spurring inflation. But Trump’s authoritarian capriciousness also undermines Washington’s role as the provider of the world’s reserve currency.
The primacy of the Dollar has been one of the greatest sources of American geopolitical clout. But this exorbitant privilege, depends on trust in the very democratic and rule-based institutions that Trump is undermining. His recent attacks against Federal Reserve chief Jerome Powell are just the latest indications that Trump might end the independence of the American central bank.
The decline of the Dollar has been predicted many times. But attempts by the BRICS states to shift to alternatives like the Chinese Renminbi have never succeeded in breaking the Dollar’s dominance. A currency dependent on the whims of the Chinese communist party does not instill trust among investors and reserve currency holders.
But as the US becomes more authoritarian and inward looking, the Dollar is becoming less attractive. The Euro, on the other hand, would become the only currency of a large economic bloc with a rules-based and predictable trade, economic and monetary policy. For a change, the slow-moving European model with its many checks and balances could come as an advantage as it provides what currency holders seek most: predictability.
But to fully seize the opportunity for a greater global role for the Euro, which could significantly enhance the EU’s geopolitical clout, the union must move ahead decisively with integrating capital markets and creating a much larger pool of European save-assets to increase the availability of, and trust in, the Euro.
Philipp Lausberg is a Senior Policy Analyst in the Europe's Political Economy programme at the EPC.
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