This is an important subject and it has left many of us scratching our heads. So it good to have someone like RB return to it with this thoughts regularly, because it stimulates thinking in the rest of us.

But there are certain things he asserts in this post without providing any economic explanations. Why should the prospect of the imposition of tariffs inevitably cause the depreciation of trading partner currencies against the USD, as he states? Is it because when threatened with tariffs (or if haphazardly applied) in Trump 1.0, overseas foreign producers would “price to market” (PTM), which is to say their currencies would depreciate in tandem so that the cost to US importers would remain unchanged in US$ (with the addition of tariffs) and the cost of production to the foreign producers would also remain the same in local currencies? And if that is a likely reason why did it not work in Trump 2.0 after the initial weakening of some currencies?

RB seems to conclude that this time the financial markets saw through Trump’s threat as simply cheap talk. And he is probably right, but we should caution ourselves that PTM might be back if Trump’s talk does turn out to be tough talk rather than just cheap.

But the US$’s continuing weakness — made more confounding despite the Fed’s neutral stance, in the face of inertial inflation, against dovishness in other major CBs — then raises the question of the end of American exceptionalism, Trump’s wrecking of the international trade and monetary order and the dollar’s possible demise as a global reserve currency. Here I detect a subtle shift in Robin’s position. I seem to remember that till recently he dismissed that argument. there were no structural forces at play, it was all cyclical. The dollar had no real challengers, he would say. But now he has moved from a positive to a normative argument. The US “ought” to protect its currency’s paramount reserve status by reverting to Cold War muscularity. The brief pop in the dollar after Trump’s recent macho display of militarism leads me to conclude that he is on to something.

All very interesting, but in a way also quite sad!