White House Considered Weakening U.S. Dollar Before Ruling It Out

WASHINGTON — President Trump and his economic advisers met this week to discuss intervening in currency markets to artificially weaken the dollar, but decided against the idea, Larry Kudlow, director of the National Economic Council, said on Friday.

Mr. Trump has made no secret of his frustration that the United States dollar has strengthened against other currencies, like those of China and the eurozone, making American products more expensive to buy in those places. But a high-level discussion about whether to intervene and drive down the dollar’s value shows the extraordinary lengths to which Mr. Trump is willing to consider going to jump-start a slowing economy as he heads into his re-election campaign.

The president has repeatedly complained that other currencies have been weakened by central banks taking steps to begin stimulus efforts to buttress their own slowing economies. Mr. Trump has accused those countries of manipulating their currencies, saying they are trying to limit economic damage from the tariffs he has imposed on European metals and $250 billion in Chinese goods.

The United States has historically had a “strong dollar” policy, meaning it is comfortable with a strong currency. But a strong dollar can function as an economic headwind by making American goods more expensive abroad and reducing the costs of imports. Despite touting the American economy’s strength, Mr. Trump has clamored for the Federal Reserve to lower interest rates to further stimulate growth while he considers weakening the dollar as another way of accomplishing that goal.

This month, Mr. Trump accused China and Europe of playing a “big currency manipulation game” and “pumping money into their system” to compete with the United States. He suggested that the United States should adopt the same strategy “or continue being the dummies who sit back and watch as other countries continue to play their games.”

Mr. Kudlow said on Friday that such a move had been discussed, but that the administration would not proceed with a plan to intervene in the strength of the dollar.

“Just in the past week, we had a meeting with the president and the economic principals and we have ruled out any currency intervention,” Mr. Kudlow said on CNBC. “The steady, reliable dollar is attracting money from all over the world.”

Mr. Kudlow added that Mr. Trump remained concerned that other countries were manipulating their currencies to try to gain a temporary advantage on trade.

Treasury Secretary Steven Mnuchin said this week that he opposed a policy to weaken the dollar.

“I am not going to advocate a weak dollar policy near term as the Treasury Secretary,” said Mr. Mnuchin, also speaking on CNBC.

The idea of intervening in the currency markets was pitched by Peter Navarro, Mr. Trump’s hawkish trade adviser, during a meeting on Tuesday at the White House, according to two administration officials who were not authorized to publicly discuss internal discussions. Mr. Trump expressed concern that global financial markets could be disrupted if the dollar’s value tumbled. The president cut Mr. Navarro’s presentation, one of the officials said, and the discussion moved on to other economic matters.

Speaking in the Oval Office on Friday afternoon, Mr. Trump offered a taste of the debate.

“The dollar is very strong,” Mr. Trump said. “It’s a beautiful thing in one way, but it makes it harder to compete.”

He added: “There’s a reason it sounds so good. Having a strong dollar is having a strong dollar.”

Mr. Trump could weaken America’s currency by directing the Treasury to sell dollars for other currencies. Analysts have warned that such a move could backfire if the Fed, which also has the ability to buy and sell foreign currencies, did not agree to assist or if other countries retaliated.

The Federal Reserve Bank of New York would carry out any intervention by the Treasury, and beyond that, the Fed has historically backed up the Treasury when it intervenes, going half-for-half on transactions. It is unclear whether the Fed would match such a move made for competitive reasons rather than to restore economic stability, analysts have said in recent weeks. That could limit the efficacy of any action by the Treasury. It has less than $100 billion in a fund that it could use to nudge currency values, a small amount in relation to the global currency market absent a match from the Fed.

“Any intervention now would presumably be a unilateral U.S. effort, which could even prompt other countries to retaliate by selling their own currencies to drive the U.S. dollar higher,” economists at Capital Economics wrote in a note to clients.

In the past, coordinated multilateral action has been an effective way of weakening the dollar. But a move similar to the 1985 Plaza Accord, a joint-agreement with France, West Germany, Japan, and the United Kingdom that had that effect, is a distant prospect in a world where trading partners appear unlikely to cooperate. And without global agreement, intervention might simply set off a currency war.

“In addition to the risk of damaging further already-strained economic and political relations, we would not expect these authorities to simply sit back and ignore an intentional” dollar depreciation, Ned Rumpeltin, the European head of foreign exchange strategy at TD Securities, wrote in a July 12 note. “In another echo of the 1930s, the specter of overt competitive devaluations will be difficult to ignore.”

The Trump administration has declined to officially label any other country as a currency manipulator, but it has been watching the currency markets carefully as other countries react to the tariffs the United States has imposed on imports. In May, the Commerce Department proposed a rule change that would expand the administration’s ability to penalize countries that manipulate their currencies.

An anticipated interest rate cut by the Fed would probably serve to weaken the dollar, but for now the administration has no plan to take direct action.

However, Mr. Trump suggested that all options remain on the table.

“I could do that in two seconds if I wanted,” Mr. Trump said. “I didn’t say that I’m not going to do something.”

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