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Guest Essay

Feb. 3, 2026

Credit...Arne Bellstorf

Jason Furman

Mr. Furman, a contributing Opinion writer, was the chairman of the White House Council of Economic Advisers from 2013 to 2017.

“Our dollar is getting too strong,” President Trump said at the beginning of his first term, “and partially that’s my fault, because people have confidence in me.” Well, his past few weeks of erratic leadership — from Greenland to Minneapolis to the criminal investigation of the Federal Reserve chair — have apparently done a great deal to sap that confidence. Last week the U.S. dollar slid to a four-year low. It has risen a little since then, but it’s still close to multiyear lows. That could be good for the U.S. economy, though probably not in the way Mr. Trump wants.

With most economic variables, the question of which direction to root for is relatively straightforward. I cheer when I see unemployment and poverty going down, just as I get excited when per capita income or the stock market goes up.

Exchange rates are different. While a strong dollar sounds preferable to a weak dollar, strength is not inherently better — and can easily be worse.

A strong dollar benefits consumers by allowing a given amount of U.S. currency to be converted into more foreign currency. For Americans traveling abroad, the benefit is obvious: They get more bang for their buck. They can suddenly afford more meals, hotel stays or souvenirs than they otherwise could. American businesses, too, feel a benefit: They can spend less to buy imported products or materials and, over time, usually pass those savings on to consumers at home.

For American exporters, on the other hand — especially manufacturers and the workers they employ — a weak dollar is better. When the dollar falls, it becomes easier for foreign buyers to afford American airplanes, cars, bicycles or beers, boosting demand and encouraging U.S. companies to hire more workers to meet it. Foreign-made airplanes, cars, bicycles or beers become more expensive for American consumers, which nudges them toward products made in this country, further supporting jobs in those industries.

For decades, U.S. officials have spoken about the dollar with extreme caution, worried that a careless phrase could roil markets and perhaps hoping, quietly, that words alone might influence exchange rates over time. One of President Bill Clinton’s Treasury secretaries, Robert Rubin, perfected this rhetorical balancing act with the careful mantra, “A strong dollar is in our national interest.” Treasury secretaries ever since have repeated that conviction, most recently Scott Bessent, whom Mr. Trump appointed and who last Wednesday reaffirmed that the “U.S. always has a strong dollar policy.”

Speaking carefully, however, is not the same as speaking coherently. At the same time that U.S. officials from both parties have praised a stronger dollar, they have also complained — loudly — that the weak currencies of other countries, especially those of China and Japan, gave them an unfair trade advantage. This, they worried, allowed other countries to flood our market with cheaper goods, skewing consumer habits toward products made abroad, which over time meant fewer and fewer jobs in this country’s manufacturing sector. But if those other currencies are stronger, then by definition, the dollar is weaker.

In the short run, words may matter. Over longer periods, exchange rates are driven by fundamentals like budget deficits, capital flows and central banks’ interest rates. Asked about the dollar’s recent slide, Mr. Trump sounded almost nonchalant, saying he wanted the dollar to “just seek its own level.” That is closer to what I teach my students than it is to the mystical incantations of traditional currency diplomacy.

There is good reason to think that the dollar’s own level may well be lower than where it has been in the past few years. The Federal Reserve has cut interest rates more aggressively in recent months than most other major central banks, while the Bank of Japan has been raising them. That combination encourages investors to shift money out of dollars and into foreign currencies, where they can earn comparatively higher returns. Even after its recent decline, the dollar remains historically strong, still near the top of the range it has fluctuated in over the past several decades.

More broadly, the United States continues to run a trade deficit that is uncomfortably large. Contrary to Mr. Trump’s claims, this is not because other countries are cheating or taking advantage of us. It is because American consumers — and the American government — spend and borrow too much. The result is excessive and possibly unsustainable indebtedness to the rest of the world to finance our consumption.

A weaker dollar could help correct this imbalance, reducing spending on imported goods — think Spanish olive oil or Vietnamese electronics — while boosting exports and narrowing the trade deficit.

This, however, is where Mr. Trump should be careful about getting what he wishes for. A weaker dollar may improve the economy’s long-run balance, but it does so by forcing Americans to tighten their belts and cut back on spending. That is about as popular a message as telling children to eat more spinach today so they will be healthier in the future.

On X the Democratic pollster David Shor has noted that periods of a weaker dollar during President Joe Biden’s tenure coincided with lower consumer confidence. Academic research has documented the same pattern. Around the world, governments have almost never paid a political price for rapid currency strengthening, but many have been toppled after sharp currency depreciation. At this time of year, much of the spinach we import comes from Mexico. We will soon find out how much more Americans are willing to spend for their greens now that the greenback has gone down.

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