Buy American! That is the message that President Trump and his economic team are broadcasting at the World Economic Forum in Davos, Switzerland this week. It’s a funny sales pitch. After withdrawing or threatening to withdraw from free trade arrangements (think Trans-Pacific Partnership or NAFTA), the Administration puts on a marketing show to attract global investment to the US. In their eyes, an “America First” policy means that policymakers’ internal focus will create great domestic growth opportunities that the international community will want a piece of. Interestingly, there was an article in the media this week suggesting that countries are including US companies in major bidding processes if only to avoid potential retribution and exclusion from access to the US consumer. Thus, there is an overhanging threat of trade skirmishes if not outright war.
That is another way that the falling US dollar (USD) is impacting the current environment. Breaking with the long-time policy of “talking” a strong US dollar, US Treasury Secretary Mnuchin showed up in Davos touting the short-term growth boost that comes from a weaker USD. It is one thing for the recent weakness relative to most major trading partners to be for general economic reasons, but for a policy maker to support the trend as a sales-point for US growth toes a fine line that may invoke others to react. After all, the US has been all too keen to cite perceived currency manipulation by countries like China. Granted, US leaders of the past may have secretly wished for a weaker currency even when touting a strong dollar policy. Not one to be coy, this administration’s outright endorsement of a weaker US dollar is another example of how they seek reflation. Sometimes it is wise to be careful what you wish for.