Market News

By Jamie McGeever

ORLANDO, Florida, May 27 (Reuters) - If the United States is to significantly reduce or, whisper it, eliminate its trade deficit, the dollar will probably have to weaken a lot. How much is unclear, though, as history shows large dollar declines are rare and have unpredictable consequences for trade.

Reducing the U.S. trade deficit is the key goal of President Donald Trump's economic agenda because he believes it reflects decades of other countries "ripping off" America to the tune of hundreds of billions of dollars annually.

Stephen Miran, chair of the Council of Economic Advisers, published a paper in November titled "A User's Guide to Restructuring the Global Trading System" in which he argued that the dollar is "persistently over-valued" from a trade perspective. "Sweeping tariffs and a shift away from strong dollar policy" could fundamentally reshape the global trade and financial systems.

If a weaker exchange rate is the Trump administration's goal, it is on the right track, with the greenback down nearly 10% this year on the back of growing concerns over Washington's fiscal trajectory and policy credibility as well as the end of "U.S. exceptionalism" and the "safe haven" status of Treasuries.