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US tariffs will weaken dollar if nations strike back, Bank of America says - BLOOMBERG
BY Anya Andrianova
(Bloomberg) — US President Donald Trump tariff policies will eventually be a drag on the dollar dxy (DX-Y.NYB, DX=F) despite providing an initial boost, according to Bank of America Corp.
“The dollar may not like tariffs after all,” wrote Athanasios Vamvakidis, the bank’s head of G-10 FX strategy, in a Wednesday note. “In a scenario of US tariffs against the rest of the world and full retaliation, the dollar could weaken.”
So far, US tariffs have lifted the world’s reserve currency thanks to its haven appeal as levies risk upending global trade flows and increase inflationary risks in the US. The Bloomberg Dollar Spot Index advanced about 7% since its lowest point late September, supported by robust US economic expansion and promises of new tariffs on allies and adversaries.
The gauge jumped more than 1% last week immediately after Trump announced 25% tariffs on imports from Mexico and Canada, but pared gains when the neighboring US countries struck a deal with Trump to delay those measures.
Also, most recently the US said it plans to start charging a 25% levy on all imports of aluminum and steel, effective March 12, threatening to upend global trading of metals, which is used in a wide array of industries from cars to infrastructure.
Nations across the globe are now trying to negotiate with the US. Tokyo has asked Trump to exclude Japanese companies from the fresh steel and aluminum tariffs, while European Union trade chief Maros Sefcovic spoke with three top members of the Trump administration about finding a solution to the brewing transatlantic trade dispute.
BofA’s Vamvakidis said if Trump slaps 10% or 20% tariffs on all US imports, then countries will retaliate, making the US “more vulnerable.”
“Everyone will end up worse-off, but the US more so,” he said. “As trade protection would increase the most in the US the rest of the world would continue trading with each-other as before or may even reduce trade protection with each other in response to US tariffs.”
That would have a negative impact on US long-term productivity, challenge US exceptionalism and in turn weaken the dollar long-term, he added.
