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Paul Krugman
Donald Trump on the Dollar, in His Own Words
Opinion Columnist
This is the first in an occasional series about Donald Trump’s statements and language and what’s at stake in the election.
On Saturday, at a rally in Wisconsin, Donald Trump said some bizarre and potentially damaging stuff about economic policy. “So what?” you may say; it was, after all, a day ending in “y.” And to be honest, the most vile thing he said at that event wasn’t about economics; it was his declaration that his vision or plan for “getting them out” — deporting undocumented immigrants — “will be a bloody story.”
Still, his remarks about how he would use tariffs to preserve the dollar’s status as a reserve currency should worry anyone imagining that international economic policy during a second Trump term would be like policy in his first term — a lot of sound and fury signifying not much.
What did Trump say? Summaries of Trump’s statements often make them sound more coherent than they are — a process some have decried as sanewashing. So let me hand over the mic to Trump himself and reproduce his remarks verbatim.
First, he proclaimed his own infallibility: “Trump is always right. I hate to be right. I hate to be right. I’m always right.”
Really? In 2020, Trump predicted a stock market crash if Joe Biden was elected; as of Friday’s close, stocks are, in fact, up 40 percent since Biden took office. Now, everyone makes bad predictions; I’m more alarmed by the idea of handing power to a man who believes that he’s never wrong.
At the rally, after he said … something … about Ukraine and our southern border, came this decree:
Our cities are a mess, and they are very dangerous places. We’re going to make them safe, clean and beautiful again, and we will keep the dollar as the world’s reserve currency, and it is currently under major siege. Many countries are leaving the dollar. You’re not going to leave the dollar with me. I’ll say, “You leave the dollar, you’re not doing business with the United States, because we’re going to put 100 percent tariff on your goods, sir. We would like very much to get back to the dollar immediately. Thank you very much.” It’s so easy.
I’ve included the stuff about making cities “safe” because it was part of a run-on sentence that somehow segued into the role of the dollar. But just for the record, violent crime, murder in particular, has actually been falling steadily since soon after Trump left office.
About the dollar, though: There’s a lot of mysticism about its role in the world; it might make one sound sophisticated to incant “reserve currency” with furrowed brow, and there has always been a market for doomsayers predicting an imminent collapse with dire consequences. In general, however, the more you know about international money, the less worried you are that (a) the dollar will suddenly lose its special position and (b) erosion of that position will do a lot of harm.
Many governments maintain war chests of foreign assets — reserves — that can be used to support their own currencies in times of stress. A bit under 60 percent of these assets take the form of United States government debt, a share that has gradually declined from around 75 percent a generation ago, as governments diversify their holdings.
But many entities hold U.S. government debt; the fact that some of those entities are foreign governments isn’t a big deal.
What makes the dollar special is its dominant role in international transactions. Much international borrowing and lending is dollar-denominated: The amount borrowers must repay is specified in dollars. A lot of international trade is invoiced in dollars. Oh, and roughly two-thirds of U.S. $100 bills — which make up more than 80 percent of the value of currency in circulation — are held by foreigners.
Why do so many people outside our country use dollars? In a justly famous paper, the economist Charles Kindleberger argued that the dollar’s role as an international currency is similar to the role of English as an international language: People speak English and use dollars because so many other people speak English and use dollars.
Crucially, the special role of our language and our currency mainly reflect private decisions — what pre-Trump Republicans might have hailed as the work of free markets — not the policies of foreign governments.
Which brings us back to Trump. I doubt that he really understands what he’s saying about the dollar as a reserve currency, but he’s probably conflating government holdings of U.S. debt with the dollar’s much wider international role.
In that case, however, what is he proposing? Would he, say, punish Indonesia if some of its businesses invoiced their trade with China in renminbi rather than dollars? Would he punish Colombia if some of its drug lords started hoarding more 100-euro notes than $100 bills?
If these suggestions sound absurd, that’s because they are. Trump’s bellicose word salad is hard to actually parse, but broadly speaking, any notion that America could use the threat of tariffs to force countries to keep using the dollar — which, again, mainly reflects private decisions — involves more than a bit of megalomania. Our nation has a lot of economic power but not that much.
Indeed, any such effort would probably backfire. Much of America’s influence, economic and otherwise, comes from our reputation as a nation that is generally sane and responsible. Making punitive tariffs a routine tool of policy would do a lot to destroy that reputation.
But good luck trying to convey that reality to Trump. Remember, he’s always right.
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Paul Krugman has been an Opinion columnist since 2000 and is also a distinguished professor at the City University of New York Graduate Center. He won the 2008 Nobel Memorial Prize in Economic Sciences for his work on international trade and economic geography. @PaulKrugman
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