Trump aims to devalue the US dollar to balance global trade.

For years, American workers have sensed that our trade system is fundamentally flawed.

Manufacturing plants have shut down and jobs have relocated abroad — not solely due to unfavorable trade agreements or cheaper labor, but also as a result of currency manipulation.

From the outset of his presidency, Trump’s America First trade policy addressed this issue, exemplified by his executive order instructing the Treasury secretary to focus on unfair currency practices.

This is a daring approach: Integration of tariffs with currency strategy to restore balance in trade. And it may just be effective.

Underpinning America’s ongoing trade deficit is a frequently ignored factor — the consistently overvalued dollar. Stephen Miran, a former Treasury economist, refers to it as the “source of [US] economic imbalances.”

In layman’s terms, the US dollar has remained too robust for an extended period, making American products pricier overseas while making foreign imports more affordable in our markets.

This persistent overvaluation of the US dollar significantly contributes to America’s global trade deficits by inflating the price of our goods abroad. This issue has led to continuous trade deficits in goods, culminating in a record $1.2 trillion in 2024.

An overvalued dollar means that US businesses can produce excellent goods but still fall short in competitiveness due to unfavorable currency exchange rates.

Trump is aware of this challenge. His America First Trade Policy memorandum explicitly addressed currency manipulation and “misalignment” as areas requiring intervention.

Why focus on “misalignment”? Even when a nation isn’t overtly devaluing its currency, significant mismatches in exchange rates can yield similar adverse results.

According to analyses from our organization, the Coalition for a Prosperous America, many currencies are notably misaligned relative to the dollar.

Trump has put forth an official strategy aimed at countering currencies that grant foreign exporters an unfair edge. Essentially, he has linked trade and currency policies in a manner unprecedented in recent decades.

While it’s easy to point fingers at China for our trade issues — a country renowned for keeping its currency undervalued to enhance exports — limiting the focus to China overlooks a broader issue.

The reality is that this is a global situation.

For years, various nations have taken advantage of the strong dollar, amassing trade surpluses at the expense of the US economy.

US businesses have not only shifted production to China but also to low-wage nations like Vietnam, Thailand, and Mexico — all of which either undervalue their currencies or profit from the dollar’s strength.

This dollar strength is a consequence of the popularity of US investments among global funds, which have invested in US stocks and bonds for decades, thereby bolstering the dollar’s exchange value.

For wealthy investors and fund managers from Argentina to London to Tokyo to the Cayman Islands, US Treasury bonds represent the safest investment globally, while American tech stocks are the premier investment vehicle for capitalizing on the AI boom.

Moreover, when the US imposes tariffs, the dollar typically strengthens against the currencies of the targeted nations. This was evident during 2018-2019, when tariffs on China caused a rise in the dollar’s value, negating about half the tariffs’ intended effect.

To ensure that tariffs are truly effective, the United States needs to stabilize its currency relative to the nations affected by these tariffs.

Our estimates suggest that the US dollar is overvalued by approximately 20% to 25%, even without factoring in tariffs.

This implies that instead of 1.08 to the euro, a more appropriate rate would be about 1.30 to the euro. Instead of 7.25 Chinese yuan per dollar, the fair rate might be 5.8 yuan per dollar.

At these adjusted rates, American products would be considerably more competitive while foreign goods would lose their competitive edge. For instance, an automobile made in the US would become 25% more competitive globally, whereas a toy or smartphone produced in China would be 25% less competitive in the US market.

Trump’s top economic advisors are cognizant of this dynamic. Once tariffs become an accepted standard economic policy tool (as they were for 130 years before World War II), it is likely that both the president and his advisors will engage in discussions about driving the dollar back to a competitive valuation.

For instance, if Trump or Treasury Secretary Scott Bessent were to publicly direct the Treasury or Federal Reserve to intervene in foreign exchange markets by selling dollars for foreign currencies, this would quickly lead to a decrease in the dollar’s value.

The synergy of a competitively priced dollar and tariffs on nations with significant trade surpluses with the US would provide a substantial boost to American manufacturers, workers, and farmers competing globally.

Such a move would create jobs, decrease imports, increase exports, and foster investments in infrastructure and equipment — representing a pro-worker, pro-industry, and ultimately pro-growth agenda for the entire nation.

While previous presidents have espoused the need to bring jobs back to the US, Trump may be the first willing to take decisive action to achieve this goal.

Jeff Ferry is the chief economist emeritus at the Coalition for a Prosperous America.