For decades, the United States was a guarantor of global economic stability. It helped Western Europe to emerge from the ashes of World War II with a massive redevelopment plan, the Marshall Plan. Whenever there was a financial crisis somewhere in the world, the U.S. Treasury department and the IMF joined forces to orchestrate supporting measures as was the case in 1995 when President Bill Clinton came to our rescue by guaranteeing Mexico’s debt in pledging U.S. federal funds through the U.S. Treasury.
When the worst economic crisis in 80 years erupted in 2008, the Americans led the globally coordinated rescue effort. Well, little is left of that once dominant position. The United States is now fighting to stay in the top league. The economic policy coming out of Donald Trump’s White House is characterized by timidity and despondency which often erupts into boastful nationalism. The former economic superpower has embarked on a self-prescribed retreat. Everything that formed the basis of the West’s economic triumph in the last six decades has been discredited.
Trade agreements are being called into question, while traditional partner countries like Mexico are being sharply criticized for supposedly causing unemployment in the U.S. A nation once bursting with self-confidence is now plagued by self-doubt and fear of decline, as it increasingly isolates itself. Trump takes every opportunity to complain that the United States has been back-stabbed in trade agreements, accusing his predecessors of negotiating bad deals. In Trump’s world, it is almost as if the United States were a victim of globalization and not an enabler of globalization. Inferiority complexes, fears of decline, incompetence: All of that is having a terrible effect on America’s status in the world. At international meetings like the G-7 and the G-20, Americans are being sidelined because of their lack of a coherent position. On important issues, from climate change to trade policy, Washington is increasingly finding itself unanimously opposed by the world community and, consequently, the IMF has adjusted its 2017 and 2018 growth forecast for the U.S. downward. Washington’s deliberations on restricting free trade and international cooperation is not only an attack on economic world peace but is also a detriment to the United States itself.
The incompetence in Washington has already claimed its first victim: The Dollar! As recently as the beginning of this year, foreign currency experts were still anticipating an exchange-rate parity between the dollar and the euro. That has now changed. The euro just surpassed the 1.20 dollar mark, but the dollar is not just performing poorly against the currency of the newly strengthened euro zone. It is also losing value against other battered currencies like the British pound, the Japanese Yen, and our peso has stabilized at just below the 18 to the dollar mark. The dollar’s loss against other currencies signifies nothing less than a vote of no confidence against Trump and his team of protectionists.
Trump’s grandiose announcements of a new era have been followed by failure after failure. He has not managed to get even a single one of his major projects off the ground. The promised repeal of Obamacare has already failed twice, the vast tax reform hasn’t materialized, and the pledged investment offensive is faltering badly. This is having an unavoidable impact on the country’s role in the world economy. The dollar had always been seen as the most secure safe-haven currency in the world – but all that has changed, and Trump’s presidency is the reason: When the conflict with North Korea reached a critical level recently, the dollar lost a significant amount of its value and the once undisputed reserve currency is now suffering in two ways: Trump’s incompetence is not only undermining America’s economic foundations, but at the same time, the isolationist course he is charting is ruining the country’s reputation in the world.
The Mexican Peso is one of the outstanding beneficiaries of the dollar’s decline and now investors are realizing that even weak currencies are able to outperform the venerable dollar. The United States has been losing influence on the international stage since the beginning of 2017, as China and its dynamic efforts to replace the U.S. in global trade gain in importance.