Latest news with #BarryEichengreen
CNN
25-06-2025
- Business
- CNN
Trump's tariffs were expected to strengthen the dollar. So why is it the weakest it's been in three years?
The US dollar is having its worst year in decades. While stocks have recovered from their April lows and demand for bonds has been relatively steady, the dollar has continued a precipitous decline. The US dollar index, which measures the dollar's strength against six major foreign currencies, is down nearly 10% this year and on Wednesday hovered around its lowest level since 2022. Wall Street had expected the dollar to strengthen under President Donald Trump's second term. His policies of tax cuts were expected to spur economic growth and tariffs were expected to reduce demand for foreign imports, boosting the greenback's value. Yet the dollar had broadly weakened this year as Trump's tariffs — and his back-and-forth decisions on implementing them, pausing them, raising them and lowering them — have injected uncertainty into markets and clouded the outlook for the US economy. While tariffs can technically boost the dollar, they also have created an uncertainty about US policy that has 'dominated' markets this year, driving the dollar lower, Barry Eichengreen, professor of economics and political science at UC Berkeley, told CNN. 'Investors don't like uncertainty,' Eichengreen said, noting the negative impact on the dollar. While uncertainty around the US economy has increased, the European economy — though facing its own headwinds from tariffs — has emerged as relatively more stable. 'The consensus out there is that US growth is slowing owing to uncertainty around Trump's tariffs and other things,' Eichengreen said. 'The weakness of the dollar may also reflect new doubts about the currency's safe haven status.' A weaker dollar could support American exporters by making their goods relatively more affordable in the global market. It could also improve revenues for businesses with overseas operations and make visiting the United States relatively more affordable for international tourists. However, the dollar is weakening at a time when there are heightened concerns about how the White House's 'erratic' policies and the massive US debt load might impact demand for US assets, Eichengreen said. Republican lawmakers hope to deliver Trump's 'One Big Beautiful Bill Act,' to his desk by July 4. There have already been concerns about foreign investors demanding higher yields to hold US debt due to concerns about the deficit. Foreign investors buying US debt want a strong dollar to get the most bang for their buck when converting their holdings into their own currency. As the dollar weakens, it eats into foreign investors' return on their investments. If there is waning demand for the dollar, Treasury yields could rise, increasing the cost of borrowing for both the US government and consumers. The dollar's decline reflects a crisis of confidence in the United States, said Arun Sai, senior multi asset strategist at Pictet Asset Management. 'If you cannot with certainty take a view on the position of the US administration, it's hard to commit capital,' Sai said. 'What we've seen with the current administration in the last few months is that this notion of the US being a default destination for global capital is being challenged.' The Trump administration's flip-flopping on tariffs has been 'detrimental to confidence' in the US dollar, according to Sai. As Trump's tariffs roiled markets in early April, there was a simultaneous drop in US stocks, bonds and the dollar that spooked investors. 'That's very peculiar. It doesn't usually happen in the US,' Sai said. 'For us, that's indicative of a loss of confidence.' Francesco Pesole, an FX strategist at ING, said the dollar's status as a strong currency and haven that investors turn to during times of stress is being dented. 'It doesn't mean it's going to lose its crown. It doesn't mean that it's going to be substituted entirely. The dollar remains the number one currency in most transactions in the world and is still the most liquid one,' Pesole said. 'However, there is now a case for markets to see that dominance sort of starting to decline at a faster pace than it has in recent years.' A survey of global fund managers by Bank of America in June showed the lowest exposure to the US dollar since 2005. Meanwhile, there have been more appealing investment opportunities in Europe. As the dollar has declined and the euro has strengthened, there are compelling opportunities to diversify and invest overseas, said Jason Blackwell, chief investment strategist at Focus Partners Wealth. International stocks can provide better returns in a weaker dollar environment. 'We can point to our non-US equity holdings and show what that diversification benefit has looked like year to date,' he said. The euro is up 11.5% against the dollar this year, hitting its strongest level against the greenback in more than four years. Blackwell said international mutual funds and ETFs are great opportunities to diversify portfolios. He said he sees the decline in the dollar as less of an indictment of the United States and more of a 'positive outlook' for other countries around the globe.
CNN
25-06-2025
- Business
- CNN
Trump's tariffs were expected to strengthen the dollar. So why is it the weakest it's been in three years?
The US dollar is having its worst year in decades. While stocks have recovered from their April lows and demand for bonds has been relatively steady, the dollar has continued a precipitous decline. The US dollar index, which measures the dollar's strength against six major foreign currencies, is down nearly 10% this year and on Wednesday hovered around its lowest level since 2022. Wall Street had expected the dollar to strengthen under President Donald Trump's second term. His policies of tax cuts were expected to spur economic growth and tariffs were expected to reduce demand for foreign imports, boosting the greenback's value. Yet the dollar had broadly weakened this year as Trump's tariffs — and his back-and-forth decisions on implementing them, pausing them, raising them and lowering them — have injected uncertainty into markets and clouded the outlook for the US economy. While tariffs can technically boost the dollar, they also have created an uncertainty about US policy that has 'dominated' markets this year, driving the dollar lower, Barry Eichengreen, professor of economics and political science at UC Berkeley, told CNN. 'Investors don't like uncertainty,' Eichengreen said, noting the negative impact on the dollar. While uncertainty around the US economy has increased, the European economy — though facing its own headwinds from tariffs — has emerged as relatively more stable. 'The consensus out there is that US growth is slowing owing to uncertainty around Trump's tariffs and other things,' Eichengreen said. 'The weakness of the dollar may also reflect new doubts about the currency's safe haven status.' A weaker dollar could support American exporters by making their goods relatively more affordable in the global market. It could also improve revenues for businesses with overseas operations and make visiting the United States relatively more affordable for international tourists. However, the dollar is weakening at a time when there are heightened concerns about how the White House's 'erratic' policies and the massive US debt load might impact demand for US assets, Eichengreen said. Republican lawmakers hope to deliver Trump's 'One Big Beautiful Bill Act,' to his desk by July 4. There have already been concerns about foreign investors demanding higher yields to hold US debt due to concerns about the deficit. Foreign investors buying US debt want a strong dollar to get the most bang for their buck when converting their holdings into their own currency. As the dollar weakens, it eats into foreign investors' return on their investments. If there is waning demand for the dollar, Treasury yields could rise, increasing the cost of borrowing for both the US government and consumers. The dollar's decline reflects a crisis of confidence in the United States, said Arun Sai, senior multi asset strategist at Pictet Asset Management. 'If you cannot with certainty take a view on the position of the US administration, it's hard to commit capital,' Sai said. 'What we've seen with the current administration in the last few months is that this notion of the US being a default destination for global capital is being challenged.' The Trump administration's flip-flopping on tariffs has been 'detrimental to confidence' in the US dollar, according to Sai. As Trump's tariffs roiled markets in early April, there was a simultaneous drop in US stocks, bonds and the dollar that spooked investors. 'That's very peculiar. It doesn't usually happen in the US,' Sai said. 'For us, that's indicative of a loss of confidence.' Francesco Pesole, an FX strategist at ING, said the dollar's status as a strong currency and haven that investors turn to during times of stress is being dented. 'It doesn't mean it's going to lose its crown. It doesn't mean that it's going to be substituted entirely. The dollar remains the number one currency in most transactions in the world and is still the most liquid one,' Pesole said. 'However, there is now a case for markets to see that dominance sort of starting to decline at a faster pace than it has in recent years.' A survey of global fund managers by Bank of America in June showed the lowest exposure to the US dollar since 2005. Meanwhile, there have been more appealing investment opportunities in Europe. As the dollar has declined and the euro has strengthened, there are compelling opportunities to diversify and invest overseas, said Jason Blackwell, chief investment strategist at Focus Partners Wealth. International stocks can provide better returns in a weaker dollar environment. 'We can point to our non-US equity holdings and show what that diversification benefit has looked like year to date,' he said. The euro is up 11.5% against the dollar this year, hitting its strongest level against the greenback in more than four years. Blackwell said international mutual funds and ETFs are great opportunities to diversify portfolios. He said he sees the decline in the dollar as less of an indictment of the United States and more of a 'positive outlook' for other countries around the globe.
Mint
10-06-2025
- Business
- Mint
China risks overplaying its hand by curbing rare earth exports
China has once again weaponized its dominant position in the supply of rare earth minerals. It has imposed stringent export curbs on these elements that are critical inputs in a range of industries from automobiles to aerospace and defence. The move comes as a response to US restrictions on the export of semiconductor technology to China. These battles are being waged against the backdrop of a broader truce in the once-escalating trade war between the world's two largest national economies. The Chinese chokehold on the supply of rare earth minerals has sent a jolt through many industries in other parts of the world, including India. For example, there are fears that assembly lines in the automobile industry will grind to a halt in the coming weeks unless China starts exporting rare earth minerals again. Also Read: Barry Eichengreen: US export curbs on high-tech enablers have rarely worked This is not the first time that Beijing has restricted the flow of rare earth minerals across its borders. It did so in 2010 after a dispute with Japan on the high seas, and was forced to roll back its export curbs by the World Trade Organization in 2015. Even though China's export ban was targeted at Japan, other countries naturally saw it as a signal of what could happen in the years ahead. The effectiveness of any export restriction depends on three factors. First, how important the input is in the production structure of the country's economy. Second, how easy or difficult it is to increase the production of that input in response to higher prices that naturally follow restricted supplies. Third, how concentrated the production of that input is in one country or in a small cartel of countries. Rare earth minerals are needed in many important industries, their supplies are inelastic and China has a massive share in their production. That suggests that the rest of the world will be at the mercy of China. Also Read: China's export ban on key minerals may have a silver lining for the US However, such events create incentives for governments as well as private companies to respond strategically. There is perhaps a lesson to be learnt here from what happened after the first oil shock to hit the world in 1973. The oil embargo that year brought many economies to their knees, but it also led to a search for new energy supplies as well as incentivized companies in sectors such as automobiles to build more fuel-efficient products. Can that happen in the case of rare earth minerals as well? In a recent paper titled 'Trade and Industrial Policy in Supply Chains: Directed Technological Change in Rare Earths, National Bureau of Economic Research Working Paper,' four economists have taken a closer look at the broader consequences of the earlier supply squeeze. Laura Alfaro, Harald Fadinger, Jan S. Schymik and Gede Virananda have shown that export restrictions on rare earth minerals imposed by China in 2010 triggered a surge elsewhere in technological innovations as well as exports in sectors that used rare earth minerals as inputs. More specifically, they found a surge in patents in downstream industries that use rare earth minerals, both in terms of using them more efficiently as well as developing alternatives. This increase in patents in countries outside China exceeded the overall rise in patents in industries that use rare earth minerals. Productivity, as proxied by exports growth, also improved. In other words, technological dynamism helped the rest of the world adapt to Chinese monopoly power in rare earth minerals. Also Read: Ajit Ranade: The success of 'Made in China 2025' alarmed the West This is a more general lesson. Jensen Huang, the head of chip-maker Nvidia, said at a recent technology industry event in Taipei that firm attempts by successive US administrations to deny China access to advanced technology have actually spurred rather than hindered Chinese innovation. 'The local companies are very, very talented and very determined, and the export control gave them the spirit, the energy and the government support to accelerate their development," Huang was quoted as saying by The Guardian. Parsing his statement provides two lessons. First, that there needs to be a private sector innovation ecosystem that has the ability to respond to either higher prices or restricted supplies. Second, there have to be at least some additional government incentives as well as policy clarity for innovators. They complement each other. The point is not to tell a sanguine story about how all will be well in the long run. It is instead to point out that dynamic economies adapt to changing circumstances. 'In capitalist reality as distinguished from its textbook picture, it is not (traditional) competition that counts but competition from the new commodity, the new technology, the new source of supply, the new type of organisation," wrote the prophet of innovation, Joseph Schumpeter, in Capitalism, Socialism and Democracy, his classic work. The Chinese dominance in rare earths is undoubtedly a strategic lever that Beijing will use to increase its geopolitical heft in an unsettled world. However, the overuse of such power will create strong incentives for others to adapt by innovation—as everyone from West Asians to Americans have learnt over the years. The author is executive director at Artha India Research Advisors.
Bloomberg
23-05-2025
- Business
- Bloomberg
Single Best Idea: Eichengreen & Roland
Tom Keene breaks down the Single Best Idea from the latest edition of Bloomberg Surveillance Radio. In this episode, we feature conversations with Barry Eichengreen & Emily Roland. Watch Tom and Paul LIVE every day on YouTube:
Bloomberg
23-05-2025
- Business
- Bloomberg
Bloomberg Surveillance: Equity Pullback
Watch Tom and Paul LIVE every day on YouTube: Bloomberg Surveillance hosted by Tom Keene & Paul Sweeney May 23rd, 2025 Featuring: 1) Sebastien Page, head of Global Multi-Asset and Chair of the Asset Allocation Steering Committee at T. Rowe Price, joins for an extended discussion on whipsawing markets and where money managers are allocating their money in an increasingly uncertain economic environment. The S&P 500 remains on course for its worst weekly performance since the selloff following President Donald Trump's tariff announcements at the beginning of the April. 2) Barry Eichengreen, professor at University of California-Berkeley, talks about the Trump administration's international economic policies and whether they serve both global and domestic interests. It comes as US businesses are the most worried about the impact of President Donald Trump's shifting tariff policies on their revenues, with more than half projecting a hit of at least 25% to their revenue, according to a survey by HSBC. 3) Emily Roland, Co-Chief Investment Strategist at John Hancock Investment Management, talks about continued signals from global bonds about US debt and whether it's just another warning signal that will pass. Many investors believe Trump has learned his lesson and will implement a more modest tariff plan, which is why they are no longer worried about the impact of tariffs on the market, but the market is still susceptible to macro shocks, and investors are now focusing on fundamentals. 4) Joe Lavorgna, Chief Economist at SMBC Nikko Securities, joins to discuss President Trump's tweets on tariffs that would affect Apple and the EU. 5) Lisa Mateo joins with the latest headlines in newspapers across the US, including a WSJ story on expensive mocktails and a Bloomberg News story on Tom Cruise receiving an aircraft carrier for one of his missions.
