Under Whom Would the Dollar Likely Perform Better: Biden or Trump?
March 20, 2024
Previous updates on this website have compared the U.S. economic performance during the Trump and Biden administrations and produced evidence pointing to a better record under the current president than his predecessor. Another question of importance concerns which of their potential second terms is likely to foster a stronger dollar.
In the post-March 1973 era of floating dollar exchange rates, the U.S. currency has by and large performed best when a Democrat occupied the White House.
- Under Republican Richard Nixon, the dollar was devalued twice, in December 1971 and February 1973, before transitioning to a flexible, market-determined value a month after the second devaluation. Over the combined eight years of the Nixon/Ford presidencies, the dollar depreciated 39.9% against the Deutche mark and 19.9% versus the Japanese yen.
- In the early years of floating exchange rates, the dollar struggled under the stewardship of both U.S. parties. During former President Carter’s single four-year term, it lost 16.6% against the D-mark and 30.0% against the yen.
- Despite a stellar dollar record in Republican President Reagan’s first term, the dollar over his two terms between January 1981 and January 1989 lost 7.8% against the mark and 36.4% relative to the yen.
- In Republican George Herbert Walker Bush’s single term, which was marred by a recession from July 1990 to March 1991, the dollar dropped 13.7% against the mark and 2.7% versus the yen.
- The pattern of secular depreciation ended in spectacular fashion during the eight-year presidency of Democrat Bill Clinton. Although 6.8% weaker against the yen when he left office, the dollar had appreciated 31.3% against the mark/euro during his stewardship.
- Clinton was followed by eight years of Republican George W. Bush, a period that included disastrous middle eastern entanglements and two recessions (March 2001-November 2011 and December 2007-June 2009). That second so-called Great Recession was caused by a systemic failure in the U.S. banking system that infected the whole global economy and is widely credited with sowing the American distrust of a wide range of bedrock institutions. When Bush43 left office, the dollar was 28.3% weaker against the euro and had also depreciated 22.4% against the yen since he began.
- In the ensuing presidency of Democrat Barack Obama, however, the dollar reacquired its mojo, climbing 21.6% versus the euro and 27.4% against the yen.
- The dollar’s trajectory again reversed course when Republican Donald Trump came to office and introduced an unprecedented brand of political leadership with constant exhausting chaos day after day after day. After four years of Trump and a series of reversals in all sorts of long-standing traditions and policies capped by a mishandled pandemic and the first assault on the U.S. Capitol since the War of 1812, Trump left office with the dollar 12.7% weaker against the euro and down 9.9% relative to the yen.
- Democrat President Joe Biden’s chapter is still evolving, but so far the dollar is up 11.5% against the euro and a whopping 46.1% versus the yen.
The dollar’s better prognosis if Biden wins than if Trump wins rests on more than the above precedents and his party allegiance. The dollar’s ascendance to the linchpin of the postwar international monetary system rested on many intangibles that are incompatible with Trump’s America First agenda of foreign policy isolation, trickle-down domestic fiscal policy, and a full-court press against immigration. Dollar acceptance was built on the image of political predictability and stability, the rule of law, not people, a free press, a strong and reliable military, having deep and transparent financial asset markets, and relationships with other governments that hinged on friendly cooperation, not hateful fear.
Yet another reason to expect the dollar to be stronger under Biden than Trump is how each might view dollar appreciation. Trump seeks a balanced U.S. trade position and promises to impose import tariffs that would dwarf those in his first term. A strong dollar dampens inflation but also depresses the price competitiveness of exports. Like former Presidents Nixon and Carter, Trump is liable to weaponize the dollar in hopes of reducing the U.S. trade deficit, and like their efforts, such a strategy is apt to prove futile and contentious. Perhaps not to the extent of former President Reagan, Biden is more likely to view dollar strength as market approval of his administrations domestic and foreign policies.
Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
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