What a strong dollar means for other countries 

In our 2024 US Elections and the markets series, we’ve considered the potential effects of the American election on forex markets.  

Trump is on the record stating that a weaker dollar would be good for America. However, there is also reason to believe either a Trump or a Harris win could lead to a stronger USD in the medium to longer term. 

Importantly, the strength of the dollar does not just affect US markets. A strong dollar has important consequences for global trade and inflation.  

Dollar-denominated trade  

The US dollar is the medium of global exchange. A stronger dollar effectively means that other currencies are comparatively weaker, which makes international trade more expensive. 

As trade between countries is generally denominated in USD, the cost of imports goes up as the dollar strengthens.  

Servicing dollar-denominated debt also becomes more costly, as the value of the local currency depreciates in relation to USD. (The perceived unfairness of America’s ‘exorbitant privilege’ is one of the reasons that some countries propose creating an alternatives medium of global exchange, such as the mooted BRICS currency.) 

Monetary policy 

Both a Harris or a Trump administration could implement policies that drive growth, encouraging inflation.  

In an inflationary environment, the Federal Reserve would be compelled to increase rates in response to rising inflation. Whenever the Fed cuts rates, other countries need to weigh up their options. Emerging markets, under particular pressure, may choose to hike rates to defend their currency.   

The takeaway: anyone interested in emerging market equities or currencies needs to pay close attention to how hot the US economy becomes under the next administration.  

Trump, Harris and the politics of world trade 

The White House also has significant power to more directly dictate terms of trade. Some reports suggest Trump would move quickly to implement sweeping tariffs.  

Trump’s mooted tariffs will be particularly focused on China, but he has also proposed 10% across the board border taxes. Considering that the US is the largest importer of goods in the world, American tariff increases would have a significant impact of world trade. 

Targeted industries might be directly affected. For instance, Trump has suggested imposing more than 200% tariffs on vehicles imported from Mexico. 

More generally, global manufacturers that depend on the US market will be especially impacted. In Europe, German manufacturing stocks, most obviously, could take an immediate hit. (In the medium term, though, a more NATO-sceptical USA could be a boon to European defence manufacturers, as policymakers seek to boost domestic capabilities.)  

The Green Economy & Global Growth 

President Harris doesn’t deploy the Trumpian zero-sum rhetoric of Making America Great Again. That said, it’s plausible that she will extend, and potentially expand, the Biden administration’s industrial strategy. Biden policies like the IRA and CHIPS Act are boosting US manufacturing in the tech and green energy sectors and beyond. 

The effects will these policies vary by sector. For instance, Europe is keen to grow its local green technology industry. The IRA, which supports American clean energy manufacturers, effectively acts a barrier to entry for non-US firms. Will the lack of a US export market harm European green tech firms, or might reciprocal tariffs ultimately boost local demand?   

In short, a Harris administration may be less systematically disruptive to global trade. But to what extent will US industrial policy amount to a tariff programme by another name? 

There’s also a flip side to America’s investment in domestic green energy. Under President Biden, the United States has also undertaken to invest in emerging market transitions to clean energy.  If President Harris were to drive funding towards green energy transitions in emerging economies (South Africa, Indonesia and Vietnam have already entered into partnership agreements), this could present an investment opportunity in local energy infrastructure and related industries.  

Your markets analysis resource 

Looking for up-to-date, in-depth market opinion and analysis? Each week, Overleveraged Podcast, the markets and macro podcast from Finalto, takes a deeper look at markets and global trends. Subscribe to Overleveraged to catch our US Elections coverage, UK Budget overview, and more. 

All opinions, news, research, analysis, prices or other information is provided as general market commentary and not as investment advice and all potential results discussed are not guaranteed to be achieved. The information may have been derived from publicly available sources, company reports, personal research, or surveys. Past performance is not indicative of future performance. Trading carries risk of capital loss. Service available to professional clients only.