U.S. Dollar Decline: Could It All Be Part of Trump’s Plan?

炒年糕的貓貓
May 9
3 min read

This article is for informational purposes only and does not constitute investment advice. Investing involves risk. Please seek independent advice before making any investment decisions.

Since 2025, former President Donald Trump's remarks and policies have contributed to a continued weakening of the U.S. dollar. The U.S. Dollar Index once fell below 98, with a cumulative drop of nearly 9%, hitting a three-year low.

The Underlying Goal: America’s Massive Debt

Trump's push for tariffs has impacted international trade, and his often erratic statements have shaken U.S. stock markets, affecting the American economy. Could Trump, who claims to want to "Make America Great Again," be unaware of these consequences? Then why does he persist? Let’s analyze the strategy behind his actions.

In reality, the U.S. government’s debt has reached $36 trillion. In June of this year alone, the U.S. needs to repay between $5.8 and $6.5 trillion in Treasury bonds — about 22% of the nation’s GDP. Faced with such a massive burden, Trump must take practical steps to reduce it.

Financial Context: How Massive U.S. Debt Accumulated

Why has the U.S. accumulated such enormous debt? During the Asian financial crisis from 1997 to 1998, massive capital outflows caused severe currency devaluation in several Asian countries. Since then, many Asian economies have stockpiled U.S. dollar reserves, using trade surpluses to invest in U.S. Treasury bonds. Over time, this has led to a massive accumulation of U.S. debt holdings by Asian countries.

Today, Japan, China, and Taiwan hold the largest dollar reserves in Asia, collectively owning about $2.2 trillion in U.S. Treasury bonds.

The Logic Behind Trump’s Strategy:

Creating Market Uncertainty to Trigger Sell-offs

Trump is well aware that a depreciating dollar eases the burden of U.S. debt. The Dollar Index’s 9% drop means the U.S. can repay its maturing debt at a lower real value. For example, if $1 was borrowed a year ago, it now only needs to be repaid at the equivalent value of $0.90, effectively reducing the debt.

To devalue the dollar, Trump has issued strong statements about increasing tariffs and made vague remarks about trade negotiations, injecting uncertainty into markets. This erodes investor confidence, prompting them to dump U.S. assets. Capital flows out of the dollar and into other currencies and safe-haven assets like gold. As a result, the dollar weakens while other currencies appreciate due to capital inflows.

This explains why Trump seems willing to endure trade setbacks and market volatility to push aggressive tariff policies.

A Two-Pronged Tariff Strategy

The ripple effects of a weaker dollar can severely impact export-driven economies. Take TSMC, a global semiconductor leader, for instance. While its products are priced in dollars, its production costs are primarily in New Taiwan dollars. A weaker dollar means product prices drop in international markets, reducing revenue. Meanwhile, costs (in TWD) remain high, shrinking profit margins.

In contrast, a weaker dollar boosts the competitiveness of U.S. exports. American goods, once expensive, have become more affordable, attracting more international buyers and helping reduce the longstanding trade deficit. Meanwhile, rising Asian currency values make their exports costlier and less competitive.

Trump's tariff policy, while triggering dollar depreciation, also aligns with his goals of protecting domestic industries and reducing the trade deficit. Moreover, it discourages Asian nations from continuing to buy U.S. debt using surplus dollars — a strategic win on multiple fronts.

Gold’s Crucial Role in Reshaping Dollar Liquidity

Gold has emerged as a key player in this strategy. The U.S. holds the largest gold reserves globally. Amid a falling dollar and a slumping stock market, gold’s safe-haven appeal has surged, pushing prices higher. From a financial perspective, this significantly boosts the book value of U.S. government assets.

By leveraging its massive gold reserves, the U.S. can use gold as collateral or credit enhancement to recreate dollar liquidity. For instance, by pledging gold, the government can raise funds from global markets and inject more liquidity into the system, easing the financial pressure caused by a weaker dollar and high debt levels.

Conclusion

Trump’s approach to engineering a weaker dollar appears aimed at tackling the U.S.’s growing debt problem while also addressing trade imbalances. For investors, it’s essential to closely monitor the dollar’s movement and its broader impact on global markets. Currency risk and asset allocation decisions must be approached with caution and flexibility. Stay tuned — more thought-provoking articles and insights are on the way.