Was die amerikanische Handelspolitik für Europa bedeutet (2025)

 Die Trump-Regierung verfolgt eine Politik des coervice protectionism, die die Handelsabhängigkeit anderer Länder ausnutzt, um verschiedene wirtschaftliche und politische Ziele durchzusetzen. Was auch die jeweiligen Ziele im Fall einzelner handelspolitischer Maßnahmen sein mögen, die US-Handelspolitik ist insgesamt dramatisch protektionistischer geworden. Da es ungewiss ist, ob und in welchem Ausmaß die nächste US-Administration die verhängten Handelsbeschränkungen rückgängig machen wird, muss die EU ihre Anstrengungen zur Stärkung ihrer wirtschaftlichen Sicherheit und Unabhängigkeit beschleunigen.

Der Kommentar gibt zunächst einen kurzen Überblick über die US-Handelspolitik der Trump-Administration und analysiert, inwieweit die jeweils verfolgten Ziele erreicht werden können. Dann werden die Handelsbeziehungen zwischen der EU und den USA betrachtet. Der Kommentar argumentiert, dass die EU gut beraten wäre, ihre Anstrengungen zur Stärkung der wirtschaftlichen Sicherheit im Hinblick auf die destabilisierende Handelspolitik der USA zu intensivieren. 

US-Handelspolitik und Coercive Protectionism

Wirtschaftspolitisch hat die Trump-Regierung weitgehend traditionelle republikanische Prioritäten verfolgt, inkl. Deregulierung (z. B. Energie, Finanzen) und Regulierungsmaßnahmen zur Unterstützung ausgewählter Sektoren (z. B. Kryptowährungen, KI). Eher ungewöhnlich für eine republikanische Administration, verfolgt sie auch eine zunehmend interventionistische Politik in bestimmten Sektoren, die teilweise durch handelsbeschränkende Maßnahmen flankiert wird (z. B. Seltene Erden, Halbleiter). Die Administration war bisher überraschend wenig an Dollar- und Wechselkurspolitik interessiert, aber Präsident Trump hat die Federal Reserve scharf kritisiert und drastische Zinssenkungen gefordert. Was die Finanzpolitik betrifft, so hat der republikanische Kongress die sogenannte one big beautiful bill verabschiedet, die auf aufgrund signifikanter Steuersenkungen zu weiterhin hohen Fiskaldefiziten und steigender Staatsverschuldung führen wird. 

Im Rahmen einer Politik des coercive protectionism, der die Handelsabhängigkeit anderer Länder ausnutzt, um wirtschaftliche und politische Konzessionen zu erringen, hat sich Trumps Wirtschaftspolitik am stärksten hinsichtlich internationalen Handels ausgewirkt. Insgesamt verlaufen die Formulierung und Umsetzung der Handelspolitik oft unkoordiniert, offenbar geleitet von den persönlichen Präferenzen des Präsidenten anstelle eines institutionalisierten inter-agency Prozesses auf der Grundlage eines kohärenten strategischen Planes. Handelspolitische Maßnahmen sind im Hinblick auf ihre erklärten Ziele oftmals schlecht konzipiert. Bilaterale Handelsabkommen mit anderen Ländern zur Vermeidung höherer Zölle sind ungenügend detailliert. All dies hat zu andauernder internationaler handelspolitischer Instabilität geführt.

Eine Vielzahl von zollbasierten Einfuhrmaßnahmen auf sektoraler, länderspezifischer und globaler Basis hat den durchschnittlichen effektiven Zoll auf US-Importe unter der Trump-Administration von 2 % auf 18 % ansteigen lassen, was etwa dem Niveau der dreißiger Jahre entspricht. Die Trump-Regierung hat sektorale Zölle eingeführt (Stahl und Aluminium, Autos, Kupfer) und weitere sektorale Beschränkungen werden derzeit in Erwägung gezogen (z.B. Flugzeuge, Pharmazieprodukte, Seltene Erden, Halbleiter, Lastwagen). Nach der Ankündigung sogenannter reciprocal tariffs auf alle Handelspartner im April veranlasste die daraus resultierende Volatilität an den Finanzmärkten die Trump Regierung, den "länderspezifischen" Zoll (nicht aber den 10% baseline tariff) vorübergehend (meist bis August) auszusetzen, um den Abschluss bilateraler Handelsabkommen zu ermöglichen. Viele der bisher erzielten Handelsvereinbarungen sind vage, und es bleibt abzuwarten, wie lange sie Bestand haben bzw. inwieweit sie überhaupt umgesetzt werden. 

Andere länderspezifische Zölle, die anfänglich hauptsächlich China, Kanada und Mexico betrafen, wurden zwischenzeitlich auch teilweise suspendiert bzw. nicht nehmen Handel aus, der vom US-Mexiko-Kanada Freihandelsabkommen abgedeckt werden. Die Trump-Administration hat auch aus primär politischen Gründen bilaterale, inkl. „sekundäre“ Zölle gegen ausgewählte Länder verhängt bzw. angedroht zu verhängen (z.B. Brasilien, Iran, Kolumbien, Russland, Venezuela). 

Selbst wenn die bilateralen Handelsabkommen, die vor dem Hintergrund der Drohung von reciprocal tariffsabgeschlossen wurden, sich als robust erweisen sollten, so ist es sehr unwahrscheinlich, dass die Trump-Administration davon absehen wird, coervice protectionism weiterhin als Mittel zur Verfolgung zumindest nicht-wirtschaftlicher und Ziele zu nutzen. Das bedeutet, dass die US-Handelspolitik weiterhin disruptiv und unberechenbar bleiben wir

Die (offiziellen) wirtschaftlichen Ziele der Trump-Handelspolitik

Die US-Handelspolitik scheint eine Vielzahl von nicht immer konsistenten wirtschaftlichen Zielen zu verfolgen. Erstens: das US-Handelsdefizit ist ein besonderes Anliegen der Trump-Regierung. Die breit angelegten reciprocal tariffs, dessen länderspezifische Höhe die jeweils bilaterale Warenhandelsbilanz widerspiegelt, zielten darauf ab, das US-Handelsdefizit zu reduzieren. Diese wurden kurz nach ihrer Ankündigung zwar vorübergehend (meist bis August) ausgesetzt. Aber nachfolgende bilaterale Handelsabkommen führten dann zu höheren Zöllen für US-Importe, verbesserten Marktzugang für US-Exporte und Versprechen der Verhandlungspartner, die Einfuhren von US-Waren zu erhöhen.

Zweitens und drittens: das Ziel, in- und ausländische Investitionen sowie Beschäftigung in der heimischen Industrie zu erhöhen, wird oft als Grund für die Einführung von Zöllen genannt. Die Logik scheint zu sein, dass, wenn ausländische Unternehmen sich mit höheren Zöllen konfrontiert sehen, sie Produktionskapazitäten in den USA aufbauen werden. In ähnlicher Weise werden US-Unternehmen vor ausländischer Konkurrenz geschützt, was Anreize schafft, die Produktion in den USA auszuweiten. Im Rahmen bilateraler Handelsabkommen haben Handelspartner oft Versprechungen gemacht, ihre Investitionen in den Vereinigten Staaten zu erhöhen.

Viertens: die Trump-Administration verfolgt die Steigerung von Staatseinnahmen durch höhere Zölle. Höhere Zölle mögen das Niveau der Importe verringern, aber höhere Einfuhrzölle sollen die Staatseinnahmen insgesamt erhöhen. Das Ziel höherer Einnahmen steht dennoch etwas im Widerspruch zu dem Ziel, ausländische Unternehmen zur Verlagerung ihrer Produktion in die USA zu bewegen.

Fünftens: oft wird nationale Sicherheit als Grund für die Verhängung sektoraler Handelsbeschränkungen angeführt. In einigen Fällen ist dies nicht der wirkliche Bewegrund, sondern dient der juristischen Rechtfertigung, die zur Aktivierung des sektoralen Handelsinstruments notwendig ist (sogenannte Section 232 Handelsbeschränkungen). In anderen Fällen bestand der eigentliche Grund für sektorale Zölle darin, importkonkurrierende Sektoren in wichtigen swing states wie Michigan, Wisconsin und Pennsylvania zu unterstützen (z. B. Autos, Stahl). Dennoch ist in anderen Fällen die sicherheitspolitische Begründung glaubwürdig, auch wenn man sich über die Effektivität der Maßnahmen streiten mag (z. B. Halbleiter, Seltene Erden, Kupfer). 

Schließlich hat die US-Regierung Handelsbeschränkungen verhängt (oder damit gedroht), um politische Konzession zu erzwingen (z. B. Brasilien, Kolumbien). Selbst die umfassenden Zölle gegen Kanada und Mexiko wurden auf der Basis politischer eher als wirtschaftlicher Gründe gerechtfertigt (z. B. Grenzsicherheit), obwohl diese Begründung auch eher auf die Notwendigkeit einer rechtlichen Rechtfertigung zurückzuführen war, um ein handelspolitisches Instrument zu mobilisieren, das der Administration große handelspolitische Flexibilität ermöglicht (International Economic Emergency Powers Act).

Handelspolitik wird Mehrzahl der wirtschaftlichen Ziele verfehlen

Es ist nicht immer klar, was die eigentlichen Ziele sind, die einer bestimmten handelspolitischen Maßnahme zugrunde liegen. Ob man die Worte der Regierung für bare Münze nimmt oder nicht, lohnt es sich dennoch zu fragen, ob die vorgegebenen (angeblichen) wirtschaftlichen Ziele realisiert werden können. 

Erstens sollen Zölle eine Verringerung des US-Handelsdefizits bewirken. Die Wirtschaftsforschung hat gezeigt, dass die Auswirkungen von Zöllen auf die Handelsdefizite bestenfalls gering sind. [1] Bilaterale Zölle können sich auf das bilaterale Defizit auswirken. Aber solange die Zölle nicht breit und hoch genug sind, um das Saldo zwischen heimischen Ersparnissen und heimischen Investitionen einer Volkswirtschaft zu beeinflussen, wird das Handelsdefizit weitgehend unverändert bleiben. Abgesehen davon, dass Zölle negative Auswirkungen auf die Produktivität haben, wird Trumps‘ Fiskalpolitik, die zu hohen Budgetdefiziten führt, den bestenfalls geringen Effekt höherer Zölle auf das Handelsdefizit begrenzen, wenn nicht sogar mehr als ausgleichen. 

Zweitens sollen höhere Zölle die in- und ausländischen Investitionen in der Industrie erhöhen. Aber selbst in Sektoren, in denen solche Investitionen nach der Einführung von Zöllen profitabel werden, werden die Unternehmen angesichts der Ungewissheit, ob die Zölle langfristig bestehen bleiben, zögern, große Beträge zu investieren. (Nicht wenige der von in- und ausländischen Unternehmen angekündigten Investitionen waren mehr als teilweise Augenwischerei.) Die Unternehmen werden weitgehend versuchen, Trump "auszusitzen" oder zumindest abzuwarten, ob die Zölle unter der nächsten US-Administration weiter in Kraft bleiben.

Drittens werden die Zölle, selbst wenn sie eine signifikante Ausweitung der Industrieproduktion zur Folge hätten, nicht zu einer signifikanten Erhöhung der Beschäftigung führen.[2] Die Beschäftigung in Industrie und verarbeitendem Gewerbe ist in allen fortgeschrittenen Volkswirtschaften seit Jahrzehnten rückläufig, und die Industrieproduktion, die in der die Vereinigten Staaten wettbewerbsfähig ist (oder wäre), ist sehr kapital- und nicht arbeitsintensiv. Die Beschäftigungszuwächse aufgrund höherer Zölle werden vernachlässigbar klein bis negativ sein.

Viertens sollen höhere Zölle auf Importe dazu beitragen, die Staatseinnahmen zu erhöhen. Anders als im Fall der anderen Ziele, wo die Effekte erst in den nächsten Jahren sichtbar werden, ist es schon zu einem Anstieg zollbezogener Einnahmen gekommen. Darüber hinaus schätzt das Congressional Budget Office, vorausgesetzt die derzeitigen Handelsbeschränkungen bleiben in den nächsten zehn Jahren unverändert, dass die höheren Zölle (bereinigt um deren Sekundäreffekte) das US-Haushaltsdefizit kumulativ um 3,3 Billionen Dollar reduzieren werden (oder gar um 4 Billionen, wenn die sich daraus ergebenden niedrigeren Zinsausgaben einrechnet).[3] Im Vergleich dazu betragen das 2025 Haushaltsdefizit 1,9 Billionen Dollar und die Staatseinnahmen für 2024 beliefen sich auf 4,9 Billionen Dollar. Abgesehen davon, dass ein erheblicher Teil der Erhöhung efektiv von US-Unternehmen und Verbrauchern bezahlt wird, werden die Zölle die Einnahmen dennoch erhöhen, auch wenn dies auf Kosten wirtschaftlicher Wohlfahrtsverluste geschieht.

Fünftens sollen durch Handelsbeschränkungen die nationale Sicherheit gestärkt werden. Höhere Zölle erhöhen die Kosten einzelner kritischer Güter. Aber wenn sie zu einer Ausweitung der inländischen Produktionskapazitäten führen, können sie die Abhängigkeit von aus dem Ausland gelieferten Waren verringern. Abgesehen davon, dass viele die nationale Sicherheit betreffende sektorale Beschränkungen schlecht konzipiert scheinen, wird es Zeit brauchen, inländische Produktionskapazitäten aufzubauen oder auszubauen (z. B. Seltene Erden, Kupfer). Nichtsdestotrotz können sektorale Beschränkungen dazu beitragen, die längerfristige Versorgungssicherheit zu erhöhen, auch wenn dies höhere Kosten nach sich zieht.

Transatlantischer Handelskonflikt

Was bedeutet das alles für die Handelsbeziehungen zwischen der EU und den USA? Höhere Zölle werden nicht zu einer Renaissance der amerikanischen Industrie und des verarbeitenden Gewerbes führen, zumal die US-Wirtschaft nun auf teurere Zwischenimporte angewiesen sein wird und geringerer internationaler Wettbewerb langfristig weniger Produktivitätsfortschritt generieren wird. Höhere Zölle werden die Investitionen in Industrie und im verarbeitenden Gewerbe nicht signifikant erhöhen. Das US-Handelsdefizit könnten sich aufgrund höherer Zölle etwas verringern, aber das bilaterale Handelsdefizit zwischen der EU und den USA wird sich nicht dramatisch ändern. Höhere Zölle werden europäische Exporte in die USA in vielen Fällen weniger wettbewerbsfähig machen, v.a. im Vgl. zu inländischer Produktion, aber nicht notwendigerweise im Vgl. zu Drittländern, insoweit letztere einen weniger gutes Abkommen mit den USA aushandeln. Von sektoralen Effekten einmal abgesehen, bleibt hinsichtlich des längerfristigen Effekts höherer Zölle zu bedenken, dass der Dollar seit Jahresbeginn gegenüber dem Euro um mehr als 15 % abgewertet hat, was bedeutet, dass zukünftige Dollar-Euro-Schwankungen das Potenzial haben, die erhöhten US-Zölle auf europäische Importe auszugleichen (auch wenn die Erhöhung der US-Zölle und die Abwertung des Dollars derzeit einen doppelten Schlag für die europäischen Exporteure darstellt).

Neben der Einführung bzw. Verschärfung sektoraler Handelsrestriktionen (z.B. Stahl, Autos), hat die US-Regierung in April im Kontext von reciporal tariffs Zölle von insgesamt 30% auf die Einfuhr (eines Großteils) europäischer Waren erlassen, die dann suspendiert wurden, um bilaterale Verhandlungen zu ermöglichen. Obwohl die EU auf Vergeltungszölle als Reaktion auf sektorale und reciprocal tariffs vorbereitete, verzichtete sie auf deren Verhängung im Kontext bilateraler Verhandlungen. Die EU versäumte es auch, das anti-coercion tool zu aktivieren, das die Verhängung eines breiteren Spektrums an wirtschaftlichen Vergeltungsmaßnahmen ermöglicht hätte. Die Möglichkeit, beispielsweise, bedeutende Beschränkungen für US-Dienstleistungsexporte zu verhängen, hätte die Verhandlungsmacht der EU gestärkt, nicht zuletzt da der amerikanische Überschuss an Handelsdienstleistungen mit der EU fast so groß ist wie der Überschuss der EU im Warenhandel mit den Vereinigten Staaten.[4] Zugegebenermaßen, die Androhung von Vergeltungsmaßnahmen kann rasch zu einer ungewollten Eskalation führen. Aber eine erfolgreiche geoökonomische Abschreckungspolitik kann, ein sehr effizientes Instrument sein, um kostenreiche Handelskonflikte zu vermeiden oder zumindest eine Einigung zu günstigeren Bedingungen zu erzielen. Die EU war zu wenig risikofreudig in ihren Verhandlungen mit der Trump-Regierung.

China zum Beispiel scheute sich nicht, Vergeltungsmaßnahmen gegen die Erhöhung von US-Zöllen zu ergreifen und die Eskalationsleiter „hinaufzusteigen“. Als die gegenseitigen Zölle auf weit über 100 Prozent gestiegen waren, stimmte Washington einer Deeskalation und der Suche nach einer Verhandlungslösung zu. Inwiefern Pekings Bereitschaft, den Export kritischer Rohstoffe in die USA einzuschränken, zur Deeskalation beigetragen hat, kann diskutiert werden. Tatsache ist jedoch, dass sich die Trump-Regierung auf die eskalierenden Kosten des Handelskonflikts reagiert hat. Eine ähnliche Reaktion zeigte sich auch im April, als die US-Regierung die reciprocal tariffs, nachdem deren Ankündigung eine erhebliche Volatilität an den US-Finanzmärkten ausgelöst hatte, vorübergehend außer Kraft setzte. 

Brüssel und Washington haben im August ein bilaterales Handelsabkommen geschlossen. [5] Demnach werden die USA einen Zoll auf EU-Einfuhren von maximal 15 %, einschließlich auf Autos und Autoteile, einführen. Der Zoll von 15 % soll auch für zukünftige Zölle auf Pharmazieprodukte und Halbleiter gelten, die derzeit Gegenstand von Untersuchungen hinsichtlich sektoraler Handelsbeschränkungen sind. Die Zölle auf eine Vielzahl anderer Güter, einschließlich Flugzeuge und Flugzeugteile, sollen auf ihr früheres Niveau verringert werden. Zollkontingente für EU-Stahlexporte werden auf ihr "historisches Niveau" zurückgeführt. Die EU hat sich außerdem verpflichtet, 600 Mrd. US-Dollar in den USA zu investieren und Energieimporte im Wert von 750 Mrd. zu tätigen, wobei unklar bleibt, wie genau die EU dieses Versprechen erfüllen kann. Darüber hinaus sollten alle EU-Zölle auf Industriegüterimporte aus den USA abgeschafft werden. Beide Seiten verpflichteten sich außerdem zum Abbau nichttarifärer Handelshemmnisse. Es bestehen weiterhin Meinungsverschiedenheiten bzw. Unklarheit hinsichtlich wichtiger Details, was zu weiteren Streitigkeiten und Instabilität in den bilateralen Handelsbeziehungen führen könnte (z.B. nichttarifäre Handelshemmnisse, digitaler Handel, Umsetzung der Zollsenkungen)

EU muss Wirtschaftssicherheitsstrategie intensiv vorantreiben

Protektionistische Handelsmaßnahmen können zur Verfolgung einer Vielzahl von Zielen eingesetzt werden. Coercive protectionism wird sich als ein – in den Händen der derzeitigen US-Administration – zu unwiderstehliches Instrument erweisen, als dass es nicht weiterhin eingesetzt werden würde, sei es zur Verfolgung wirtschaftlicher oder politischer Ziele. Darüber hinaus mangelt es in den Fällen, in denen bilaterale Handelsabkommen geschlossen wurden, oft an Details, was zu erneuten Konflikten führen kann. Außerdem sind weitere sektorale, handelsbezogene Untersuchungen im Gange. Deswegen werden die internationalen Handelsbeziehungen weiterhin von Instabilität, Unberechenbarkeit und Unverlässlichkeit geprägt sein. [6]

Die Vereinigten Staaten werden dennoch die meisten ihrer vorgegebenen wirtschaftspolitischen Ziele nicht erreichen, einschließlich der signifikanten Verringerung des Handelsdefizits, der "Wiederbelebung" der heimischen Industrie oder dem Anstieg der Beschäftigung in Industrie und verarbeitendem Gewerbe. Allenfalls werden die mit höheren Zöllen verbundenen Staatseinnahmen steigen, aber auf Kosten eines geringeren langfristigen Wirtschaftswachstums. Sektorale Beschränkungen können dazu beitragen, kritische wirtschaftliche Abhängigkeiten hinsichtlich kritischer Einfuhren und nationaler Sicherheit zu verringern, jedoch zu nicht unerheblichen finanziellen Kosten. 

Aus diesem Grund sollte die EU ihre Anstrengungen zur Bewältigung der Handelsspannungen mit den USA (und auch China), flankiert durch eine wirksamere geoökonomische Abschreckungs- und Verteidigungspolitik.[7] Die EU sollte aber gleichzeitig Anstrengungen beschleunigen, ihre wirtschaftliche Sicherheit zu erhöhen und sich so weniger anfällig für coercive protectionism zu machen. Dies sollte durch Export-Diversifizierung und die Verringerung importbedingter Verletzlichkeiten geschehen, wobei letztere ebenfalls durch Diversifizierung und gegebenenfalls dem Aufbau heimischer Produktionskapazitäten gemindert werden kann. 

Das bedeutet nicht, dass die Möglichkeit handelspolitischer Kooperation mit den USA, v.a. was wirtschaftliche und nationale Sicherheit betrifft, nicht eingehend geprüft werden sollte. Aber die EU muss davon ausgehen, dass die Bereitschaft einer stark transaktionsorientierten und unilateral agierenden US-Administration, deren Handelspolitik durch ein geringes Maß an wirtschaftlicher und strategischer Kohärenz gekennzeichnet ist und die nicht davor zurückscheut, wirtschaftliche Abhängigkeiten opportunistisch auszunutzen, verlässliche und dauerhafte Vereinbarungen zu treffen, gering ist.

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[1] IMF, Macroeconomic consequences of tariffs, Working Paper 9, 2019

[2] Peterson Institute, Closing the trade deficit would barely raise the share of US manufacturing employment, Realtime Economics, June 13, 2025; AEI, The (non) effect of tariffs on manufacturing employment, 2025

[3] Congressional Budget Office, An update about CBO’s projections of the budgetary effects of tariffs, August 22, 2025

[4] ECB, US trade policies and the activity of US multinational enterprises in the euro area, Economic Bulletin No. 4, 2025

[5] European Commission, EU-US trade deal explained, July 29, 2025

[6] Markus Jaeger, Domestic constraints and strategic restraint, Zeitschrift für Außen- und Sicherheitspolitik (forthcoming)

[7] Markus Jaeger, Defense and deterrence against geo-economic coercion, Deutsche Gesellschaft für Auswärtige Politik, 2022

The Independence of the Federal Reserve and the Trump Administration (2025)

Despite repeated attacks on the Federal Reserve and calls for significant interest rate reductions by President Trump and his officials, significant legal, political and economic obstacles make it unlikely that the executive will gain any meaningful degree of control over monetary policy. Even a successful attempt to install a loyalist (or two) at the Federal Reserve would not lead to a shift toward a significantly different policy, let alone a broader diminution of the Fed’s independence. This comment analyzes the legal foundations of the Fed’s monetary policy independence, assesses the president’s ability to install loyalists at the Fed, and argues that institutional, political and economic factors make it unlikely that the Fed’s independence will be diminished under the Trump administration, continued attacks notwithstanding.

Legislation provides for robust safeguards supporting monetary policy independence

The Fed’s independence in terms of monetary policy rests on several acts of Congress.[1] The founding Federal Reserve Act (1913) provided for the independence of Fed governors who can only be removed “for cause”, meaning for misconduct in office, inefficiency or neglect of duty. The Banking Acts of 1933 and 1935 codified the relationship between the Fed and the executive and removed the treasury secretary from the Board of Governors. The Treasury-Fed Accord (1951), not a piece of congressional legislation, liberated the Fed from a prior, war-time-era commitment to support the treasury market, thereby providing it with operational independence to set monetary policy. Finally, the Federal Reserve Reform Act (1977) committed the Fed to promoting “the goals of maximum employment, stable prices, and moderate long-term interest rates.” It was not until 2012 that the Fed publicly defined “stable prices” to mean two-percent inflation, while failing to provide a numerical target for “maximum employment.”

Legal Foundations of Federal Reserve Monetary Policy Independence
Federal Reserve Act (1913)	Establishes Federal Reserve system; sets ten-year terms for governors, who can only be removed “cause”
Banking Acts (1933)	Creates FOMC without giving voting rights to the Federal Reserve Board; establishes staggered twelve-year terms for governors
Banking Acts (1935)	Shifts power from the regional reserve banks to the Board of Governors; codifies relationship between the Fed and the executive and legislative branches; raises governors’ terms to fourteen years
Treasury-Fed Accord (1951)	Liberates Fed from commitment to cap long-term treasury yields and support treasury debt management
Federal Reserve Reform Act (1977)	Commits Fed to “dual mandate” of promoting maximum employment and price stability

Source: Author’s compilation

As far as monetary policy is concerned, the Federal Reserve is structured as follows. The Federal Reserve Board of Governors (or Federal Reserve Board) is responsible for setting bank reserve requirements and the interest rate on excess reserves (see below). The Fed Board consists of seven members who serve non-renewable fourteen-year terms. Members need to be nominated by the president and confirmed by the Senate. Serving renewable four-year terms, the chairman and the vice chair (as well as the vice chair for supervision), who need to be board members, require separate nomination by the president and confirmation by the Senate. The Fed Board takes decisions by majority.

The Federal Open Market Committee (FOMC) is responsible for setting the Fed’s main policy rate, the federal funds rate, as well as the overnight reverse repo rate. The FOMC consists of the seven members of the Board of Governors, the New York Federal Reserve president and the other eleven regional Federal Reserve Bank presidents, only four of whom are eligible to vote (on a rotating basis) at any one time. Unlike the governors, the regional presidents are appointed by nine-member regional private sector boards for renewable five-year terms, subject to approval by the Board of Governors. FOMC decisions, including interest rate decisions, also require support from a majority of members.

Long, non-renewable, staggered terms for governors, Senate confirmation (for governors), the inability of the president to remove governors (except for cause) and the inability to remove or appoint regional Federal Reserve bank presidents help insulate monetary policy decisions from undue political influence by the executive. The COVID-19 crisis excepted, these institutional safeguards, combined with the Fed’s dual mandate of “price stability” and “maximum employment,” have allowed the Fed to successfully maintain low inflation for the past four and a half decades.

Other than rhetorical attacks, the most direct way for the president to influence monetary policy is to change the composition of the FOMC by stacking it with political loyalists (or individuals sharing the president’s policy preferences). However, barring unforeseen resignations, President Trump will only beable to appoint two new governors during the remainder of his time in office. He is about to replace Adriana Kugler, who resigned in August (and whose terms was originally going to expire in January 2026) and he will be able to replace Jerome Powell, whose term as governor expires in January 2028. The president will also have an opportunity nominate a new Fed chair when Powell’s terms as chair expires in May 2026. But even if the president managed to get two loyalists confirmed, including one of them as chair, it would not change the composition of the twelve-member FOMC much, nor its policy.

 

Member of the Board of Governors	Term Expires
Adriana Kugler*	January 2026 (vacated seat in August)*
Jerome Powell (chair)	January 2028*
Christopher Waller	January 2030
Michael Barr	January 2032
Michelle Bowman (vice chair)	January 2034
Philip Jefferson	January 2036
Lisa Cook	January 2038

Source: Federal Reserve
* Terms expiring during Trump presidency

The president could also try to remove Fed Board members “for cause”. (This is what the administration may be preparing to do by blaming Fed Chair Powell for the cost related to the renovation of the Fed’s D.C. headquarters.) If the president were to dismiss Powell as governor, the case would very likely be litigated and the case would end up before the Supreme Court. As per 1913 Federal Reserve Act, it is less clear that the same safeguard applies to position of Fed chair. However, even if the administration managed to dismiss Powell as chair, it would not be able to remove him as board member (other than “for cause”) and Powell could then decide to stay on as board member until January 2028, thus limiting the president’s ability to nominate a political loyalist to the Board and forcing him to choose among broadly “traditionally-minded” Board members. 

Moreover, despite the ability to set the agenda, a loyalist Fed chair would need to win majority support from FOMC members in terms of monetary policy decisions. Just because historically the Fed chair rarely has been on the losing side of votes does not mean that a controversial, political Fed chair would be able to secure majorities for significant changes or shifts in monetary policy. Another (minor) obstacle arises from the fact that although the Fed chair, by convention, is also FOMC chair, the FOMC chair is not a legally defined position and FOMC members, by statute, could elect another committee member, instead of a controversial Fed chair. Granted, this would increase uncertainty and may raise concerns among investors, but it would also prevent a loyalist from heading up the FOMC. 

The preceding analysis rests on the premise that present legal safeguards concerning Fed independence remain in place. The Trump administration often invokes the so-called unitary executive theory, which stipulates that the president has wide-ranging authority over the executive branch, including the authority to dismiss officials of independent agencies. In a recent decision, the Supreme Court ruled in favor of the administration’s decision to remove the heads of two independent government agencies. But in its decision the Court also made it clear that this decision would not apply to the Federal Reserve. [2] This makes it likely, though not certain, that the Supreme Court would balk at granting the president the ability to fire Fed officials at will, should the executive invoke such authority. On balance, this makes it unlikely that the administration would prevail legally, meaning that the president’s ability to remove Board members will remain highly restricted. 

Barring unforeseen vacancies, the president will therefore be able to appoint only two new members to the seven-seat Fed Board, and two out of twelve FOMC members. This would not meaningfully affect the independence or monetary policy of the Fed, for the president’s ability to fire regional bank presidents, let alone replace with loyalists, is virtually nil, according to dominant legal opinion.[3]

Placing a couple of loyalists on the FOMC will be difficult, and likely not very effective 

Apart from setting the federal funds rate, political loyalists could seek to weaken Fed policy by pushing for an upward adjustment of the two-percent inflation target or a further tweaking of the monetary policy framework.[4] But these decisions also require majority support on the FOMC. But it is the Fed Board, not the FOMC, that sets the interest rate on reserve balances (IORB). Under the current ample-reserves regime, a majority of governors could seek to lower the IORB, thus potentially compromising the FOMC’s ability to set a lower bound for the federal funds rate. Such a move is perhaps not very likely given how potentially damaging it would be for Fed credibility and financial instability it might cause. But either way, such a decision would require the support of a majority of governors, which would be easier than gaining majority support on the FOMC.[5]

For any of the above scenario to materialize, the president would need to dismiss a substantial number of governors to have the opportunity to be able to “gain” majorities on the Fed Board, let alone the FOMC. But the larger the number of dismissals (assuming they prove successful), the greater the economic-financial turmoil this would trigger, and the less likely such a move becomes politically judging by the president’s April decision to suspend reciprocal tariffs after their announcement triggered significant financial market volatility. 

Moreover, even if the president managed to dismiss substantial numbers of governors, their replacement would require Senate confirmation, unless the president manages to make a recess appointment.[6] The Senate balked on several occasions at supporting and confirming controversial unofficial and official nominees during the first Trump term (e.g. Judy Shelton). The Republican’s present 53-47 majority would make it very difficult for a controversial political loyalist to be confirmed. Democrats would oppose such a candidate, as would, at least until the mid-terms, several retiring “traditional” Republican senators as well as some purple-state senators.[7] Finally, it is far from clear that Trump-nominated governors (or chair), even if confirmed, would do the president’s bidding once in office, something President Trump understands Quote: “Sometimes they’re all very good until you put them in there and then they don’t do so good.” 

Federal Reserve independence will survive Trump administration

None of this means that attempts to fire Board members “for cause” (or other reasons) would not lead to market volatility. But legally, the obstacles to removing governors are extremely high, and the president lacks the ability to remove regional Reserve Bank presidents. 

If the president managed to put one or two or even three loyalists on the Fed Board, that Fed monetary policy might become marginally more dovish than it would otherwise have been. But this would be very different from the Fed abandoning its commitment to price stability or forfeiting its independence. After all, there are almost always grounds for legitimate disagreement about the optimal course of monetary policy in view of the Fed’s price stability commitment. Placing two dovish governors on the FOMC would make the median members slightly more dovish without leading to a significantly more dovish policy given the need for majority support. 

A more dovish policy would, all other things equal, lead to a moderately weaker dollar, moderately higher long-term interest rates and stronger equity markets. Meanwhile, a broader assault on the Fed in the guise of an attempt to dismiss several Board members, let alone regional presidents, would likely trigger severe market turmoil, at least initially until the legal situation is clarified. 

Similarly, it would require a major weakening of Fed independence for the international role of the dollar to be threatened. The dollar retains many important structural advantages, benefitting from America’s geopolitical power, economic size, rule of law (comparatively speaking), and large, liquid financial and government bond markets, as well as an incumbency advantage and weak competitors. Against the backdrop of less predictable U.S. fiscal, trade and financial sanctions policies under the Trump administration, further international currency diversification by official investors and an increasing shift into non-dollar assets by private investors is possible, even likely. The political attacks on the Fed will at the margin also support such a shift without it however leading to a broader meaningful diminution of the dollar’s status as the dominant international currency.

Non-legal factors also limit likelihood of wholesale assault on Fed independence

Significant legal, political and economic obstacles make it unlikely that the Fed will see a diminution of its monetary policy independence under the Trump administration. Legally, the Supreme Court is unlikely to grant the president the authority to dismiss governors at will. Dismissing governors “for cause” would run into opposition from courts. Even if successful, the Senate would then need to confirm the presidential nominees but would balk at confirming individuals seen as too politically beholden to the president and weakening the de facto independence of the Fed. And even if several of the presidents’ preferred nominees were to be confirmed, it is far from clear that they would do the president’s bidding. Majority decision-making would further limit the influence of political loyalists on the Board and especially the FOMC. Barring a major reversal of the courts, the legal-institutional obstacles that stand in the way of President Trump gaining meaningful control or influence over Fed monetary policy are very significant.

Economically and financially, a major assault on the Fed’s independence would lead to extreme financial market volatility and weaken the economic outlook, thus sharply reducing the administration’s incentives for such a move. Politically, the incentive to make a major attempt to weaken Fed independence is also limited because it is unlikely to succeed and because it would deprive the Trump administration of a convenient scapegoat if the U.S. economy were to weaken.

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[1] In addition to monetary policy, the Federal Reserve is responsible for financial stability, supervision and regulation, and the payments system.

[2] Financial Times, Supreme Court signals it could shield Federal Reserve from Donald Trump, May 23, 2025. For a “contrarian” view, Lev Menand, The Supreme Court’s Fed carveout, Columbia Public Law Research Paper forthcoming, May 27, 2025

[3] For a contrarian view, Financial Times, How to kill the Fed’s independence, February 25, 2025

[4] Federal Reserve, Statement on Longer-Run Goals and Monetary Policy Strategy, adopted effective January 24, 2012; as amended effective August 27, 2020

[5] Federal Reserve, Implementing monetary in an ‘ample-reserves’ regime, FEDS Notes, 2020

[6] A temporary appointment by the president to fill a vacant position when the Senate is in recess. Such an appointment expires at the end of the Senate’s next session. The Senate can block recess appoints by holding pro forma sessions.

[7] It remains unclear if the nomination of Trump loyalist Stephen to replace Kugler requires Senate confirmation or via recess appointment. As he will only serve out Kugler’s term till January 2026, the Senate may (or may not) be more receptive to the nomination if Senate confirmation is required.

Demographic change and prosperity (2025)

Demographic change is a slow-moving force whose causal impact often remains imperceptible in analyses focused on shorter time horizons due to its limited variability. Over the longer term, however, demographic change is often a critical variable shaping developments, including economic growth, capital accumulation, government budgets, technology adaptation, prosperity, and even politics. 

Global demographic trends differ greatly with some countries experiencing population stagnation or decline, while the populations in other countries are expanding rapidly. Some commentators have voiced fears that current levels of prosperity in advanced economies cannot be maintained due to demographic decline. For this to happen, however, the decline of the economically active population would need to more than offset the increase in labor productivity. This is possible, but not necessarily likely. But demographic aging will bring about changes to the pattern of consumption, including its distribution across generations and its type (e.g. consumption of health care services vs. automobiles).

None of this is to say that an economy that is stagnating in terms of size because of a declining working-age population does not create economic and financial challenges. Economically, the combination of low growth and increasing government social spending can create financial problems. Politically, demographic aging creates so-called “grey majorities” which can make it difficult for governments, particularly democratic ones, to force through the reform necessary to maintain financial stability. To the extent that voters view health and pension expenditure as “acquired rights”, political opposition to reform tends to be significant. Similarly, countries with a large share of young people may be more prone to political instability, particularly in the context of uneven economic growth and limited employment opportunities. 

Countries and governments are not powerless to deal with demographic change. But both mitigating the effects of demographic decline in advanced economies and leveraging demographic expansion in developing economies requires far-sighted public policies. 

This comment is divided into three parts. First, it provides an overview of demographic trends in advanced, emerging and developing economies. Second, it discusses the various economic, financial and political challenges faced by the three types of countries. Finally, it will offer recommendations about what can do to cope with the economic challenges brought about by demographic change.

Demographic change in advanced, emerging and developing economies

When discussing the impact of demographic change on prosperity, it is helpful to divide countries into three categories: advanced economies (or high-income countries), emerging economies (or middle-income countries), and developing economies (or low-income countries). [1] Demographic trends in advanced, emerging and developing economies differ markedly, leading to different sets of economic (and political) challenges. For a start, the median age of high-, middle- and low-income countries is 40, 30 and 20 years, respectively. 

Advanced economies are characterized by high per capita incomes, low economic growth and a rapidly increasing old-age population. In some cases, the population is even declining due to decades of below-replacement fertility rates. Where the population continues to increase, it is generally due to net immigration. In either case, the so-called old-age dependency ratio, defined as the share of people over 65 years relative to the population of working age, averages 30 in advanced economies, meaning that that for every person of retirement age, there are roughly three people of working age. In Japan, for example, the ratio is currently 50 and will reach 80 by 2050.

Emerging economies, characterized by middling per capita incomes but generally rapid economic growth, are also aging, in some cases very rapidly (e.g. China). But their old-age dependency ratio remains substantially lower than in advanced economies. Emerging economies are (or were until recently) in a demographic sweet spot as they experienced declining overall dependency ratios. China’s economic takeoff, for example, in the 1980s was demographically flanked by the effects of the one-child policy introduced in the late 1970s. Today, fertility rates have fallen to near or even below replacement levels in many upper middle-income countries, setting them up for rapid demographic aging over the next few decades. In today’s advanced economies, this transition was comparatively gradual. In many emerging economies it will be much more abrupt, meaning that related economic challenges will affect these countries more precipitously, if more predictably.

Developing economies have low levels of per capita income and are characterized by young, growing. The variability of economic growth is significant within this group. Similar to old-age dependency in advanced economies, a high youth dependency ratio in developing economies translates into a large share of economically inactive youth relative to the working-age population. 

How demographic change affects prosperity

The economic and financial outlook for the three groups of countries differs markedly. First, advanced economies have a significantly lower growth potential than emerging and developing economies. Advanced economies grow less fast because they operate near the so-called technological frontier. Low economic growth in advanced economies makes distributional conflict more intense, exacerbating challenges related to high debt and significant old-related expenditure commitments (see below). Emerging and developing economies find it easier to generate productivity gains due to physical capital accumulation and the adaptation of advanced-economy technologies. In principle, developing economies are even more favorably positioned, but they not infrequently fail to fully exploit their potential catch-up growth due to political and economic instability, among other things. 

Second, advanced economies are faced with adverse labor supply dynamics, compared to emerging and developing economies. According to the standard economic growth model, labor, in addition to capital and technology, contributes to economic output. Expanding working-age populations, provided they are fully employed, will add to economic output, while a declining working-age population will subtract from it, all other things equal. 

Third, advanced economies’ demographic aging can affect the level of savings (and hence investment and economic growth). As the share of economically inactive people, namely retirees, who do not produce but consume, increases, consumption will tend to increase and savings to decrease (relative to the baseline scenario where the old-age dependency ratio remains constant). This is akin to the life-cycle hypothesis which posits that savings peak in middle age. Indeed, the savings ratio in “middle-aged” emerging economies is significantly higher than in advanced and developing economies. Of course, many other factors affect savings and investment in an economy, but an increasing dependency ratio should, all other things equal, reduce or at least weigh on savings.

Fourth, advanced economies are, on average, characterized by high debt-to-GDP ratios and are faced with large age-related government spending increases. Social transfers and old-age related spending typically constitute the largest spending category in advanced economies. Moreover, advanced economies, but also some emerging economies, face large increases in age0-related expenditure, as represented by the net present value of future pension and health care spending. By contrast, the government debt burden (measured as a share of GDP) in developing economies is much lower, as is age-related spending. This does not mean that advanced economies are at lower risk of short-term financial instability. Although advanced and emerging economies have higher debt, they also benefit from a broader tax base, a more captive investor base, superior governance and higher per capita incomes, compared to developing economies. Nonetheless, the medium- and long-term financial challenges in the face of demographic change are significant in advanced economies, somewhat less so in emerging economies, and virtually absent in developing economies.

Finally, distributional conflict is easier to manage in rapidly growing emerging economies than in slow-growing advanced economies, particularly over age-related “acquired rights.” It is more challenging to rein in spending and/ or increase revenue in slow-growing economies, as a less rapidly growing “pie” makes distributional conflict more intense. In advanced economies, especially, an expanding grey majority keen on defending acquired rights also becomes electorally more influential given its growing share of the voting population. By contrast, a rapidly expanding youth population can lead to instability (‘youth bulge”). This also can make it harder to pursue a forward-looking policy consistent with long-term financial stability. Compared to advanced economies, emerging economies may find it easier to deal with distributional conflict given generally high economic growth rates as well as more limited pressure to rein in old-age spending. 

RECOMMENDATIONS

Demographic change will have a major impact on the economic outlook and government finances, particularly in advanced economies, but also in many emerging economies. Developing economies also face demographics-related economic challenges. Here are recommendations what countries should do. 

Advanced Economies 

Advanced economies faced with slowly growing/ declining working-age populations, low trend growth, and increasing government debt should do the following:

> Devise policies to prevent further decline in economic growth by, for example, creating incentives for older workers to remain in the workforce, if only part-time, for longer and supporting the development and integration of productivity-enhancing technologies (e.g. AI).

> Increase fertility rates from below-replacement levels. However, few, if any countries have thus far proven successful at increasing fertility. Even countries with significant social policies (e.g. Scandinavia) have seen their fertility rates decline significantly. But it is worth experimenting with policies that can at least stabilize fertility rates at current levels.

> Reduce upward pressure on old-age-related government spending by adjusting benefits and making old age spending more targeted and efficient as well as by increasing contributions to the various regimes to adjust for increased longevity.

> Increase smart immigration by facilitating immigration and supporting immigrants by offering training and education to accelerate their economic integration, particularly in sectors experiencing labor shortages. Politically, this may be a delicate task given the prominent role played by anti-immigrant parties in many advanced countries. However, by explaining the benefits of immigration and facilitating economic integration and, if necessary, by offering temporary work permits only, governments can maintain greater control in view of political headwinds in many advanced countries.

Emerging Economies

Emerging economies faced with a rapidly slowing demographic momentum, a fair economic growth outlook and middling debt levels, should seek to avoid replicating the mistakes of advanced economies and should: 

> Devise policies to support continued high economic growth. Individual policies will vary by country, as different economies face different challenges (e.g. high-saving China versus low-saving Brazil).

> Convert high levels of savings into productive, growth-enhancing domestic investment and/ or generate government savings to be invested in a sovereign wealth fund/ public pension to support future increases in old-age expenditure (e.g. Singapore).

> Limit future government old-age-related spending in view of rapid demographic aging. Avoid making expenditure commitments that will put stress on government finances in view of rapid aging by, for example, tying contributions and expenditure to projected demographic developments.

> Increase immigration (see advanced economies).

Developing Economies

Unlike advanced and emerging economies, developing economies have low savings rates due to a high youth dependency ratio, but significant catch-up growth potential, while a rapidly expanding young population creates economic and political challenges. They should:

> Maintain/ increase political and economic stability to exploit considerable economic catch-up potential and reduce the incentives for emigration of the most skilled individuals to high-wage economies where there is strong demand.

> Mobilize greater fiscal and financial resources to invest in education (among other things, including infrastructure) to make young people entering the workforce employable, particularly in view of AI and robotics.

> Pursue policies aimed at lowering the youth dependency ratio to enhance the economy’s savings potential. This should not be done in terms of incentives, ideally by way of educating women, strengthening their political rights and offering targeted, affordable old-age-related policies to reduce the incentives to have large numbers of children, particularly in poor, rural areas.

> Create attractive conditions to lure back emigrants through incentives, such as economically efficient tax benefits, before or after retirement.

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U.S. Economic Policy and the Dollar (2025)

The appreciation of the euro against the dollar will lead the European Central Bank (ECB) to lower interest rates further in 2025, even though by itself this is unlikely to weaken the euro, which will make it less likely that the U.S. administration will pursue destabilizing financial policies aimed at weakening the dollar further. Despite expectations that protectionist U.S. trade policies would lead to an appreciation of the dollar, the U.S. currency has depreciated since President took office in January. Meanwhile, U.S. equity markets have reached or remain close to all-time highs, despite the risk of trade-related economic disruption. Thus far, dollar depreciation has been orderly, suggesting it is driven by a gradual shift of private investors into non-dollar-denominated, including euro-denominated assets.

> Since President Trump took office in January, the dollar has depreciated 11% against the euro. The dollar has also depreciated in trade-weighted terms, meaning against a broader basket of currencies.

> The dollar-euro interest rate differential has widened year-to-date. The Fed has left its policy rate unchanged at 4.25-4.5%, while the ECB has lowered its policy rate by a cumulative 100 basis points. A widening rate differential in favor of the dollar should have, all other being equal, led to dollar appreciation.

Higher U.S. tariffs combined with a stronger euro will weigh on euro area inflation and economic growth and will lead the ECB to lower interest rates by another 25-50 basis points this year. The dollar-euro interest rates differential will not change significantly with the ECB lowering rates by 25-50 basis points this year, and the Federal Reserve (Fed) by 0-0.75 basis points. A high level of uncertainty will continue to attach to U.S. economic policies and the U.S. inflation outlook. While increased government spending in Europe, particularly by Germany following the reform of the debt break, will help support domestic demand, a stronger euro and higher U.S. tariffs will weigh on exports. Nonetheless, the outlook for increased investment and defense spending will help attract investment into the euro area, further helped by erratic, dollar-negative U.S. economic. Increased investment and more predictable euro area policies will also support the greater diversification into euro-denominated assets.

> Euro area inflation has declined to the ECB’s two-percent target in June. Markets and analysts expect the ECB to lower interest rates by 25 basis point one more time, bringing the policy rate to 1.75%. The ECB has lowered its policy rate from 3% at the beginning of the year to 2%.

> In its April World Economic Outlook, the IMF forecasts U.S. real GDP growth of 1.8% and 1.7% in 2025 and 2026, respectively. Meanwhile, the respective forecasts for the euro area are 0.8% and 1.2%.

> While the euro area’s second and third largest economies, France and Italy, have limited room to increase fiscal spending, Germany has committed to spending an additional $ 1 trillion on infrastructure and defense over the next few years, which is a sizeable amount given euro area GDP of EUR 15 billion. This has helped make previously undervalued European equities more attractive to investors.

A weaker dollar and highish U.S. interest rates are suggestive of concerns about erratic U.S. economic policies, including attacks on the Federal Reserve as well as large fiscal deficits and increasing government. Strong U.S. equity markets suggest investor optimism in the context of the ongoing AI boom, the Trump administration’s deregulation agenda and the relative growth outperformance of the U.S. economy vis-à-vis Europe. A combination of high U.S. interest rates and sizeable fiscal deficits has historically led to a strong dollar. The significant uncertainty attaching to U.S. trade and foreign economic policies helps explain why investors are eager to increase their holdings of non-dollar assets. A weaker dollar, the risk of lower interest rate due to government pressure on the Fed, and deregulation also benefit U.S. equity valuations, while weakening demand for dollar-denominated fixed income assets. Increased concern about Fed independence and more broadly erratic U.S. economic policies may also explain the unusual behavior of the dollar and treasuries following the announcement of reciprocal tariffs when both the dollar and U.S. treasuries sold off.

> U.S. headline and core personal consumption expenditure inflation, the Fed’s preferred inflation gauge, reached 2.3% and 2.7% year-on-year, and thus remained above the Fed’s two-percent inflation target. In its Summary of Economic Forecasts, the Fed forecasts 50 basis point worth of interest rate cuts this year. U.S. unemployment was 4.1% in June, suggesting a tightish job market, not conducive to rapid disinflation.

> The Congressional Budget Office estimates that the budget reconciliation bill will add $3-4 trillion worth of debt until 2035, or roughly 10% of 2035 GDP), compared to a scenario where the cuts would have expired. Continued large fiscal deficit will lead to an increase of the debt-to-GDP ratio, which currently stands at 100% of GDP/

A weaker dollar will help limit the incentives for the Trump administration to pursue unorthodox, risky and potentially destabilizing financial policies aimed at further weakening the dollar in the context of continued large U.S. trade deficits. Uncertainty about U.S. economic policy, including trade policy, will continue to weigh on the dollar. The interest rate differential is not change much, if at all in the dollar’s favor this year. Whether recent dollar weakness will lead to a tangible narrowing of the U.S. trade deficit remains to be seen. Even if it did, it would not lead the U.S. administration to pursue less protectionist policies than it would otherwise have done. However, given the risk attached to other “unorthodox” financial policies aimed at weakening the dollar that various members of the Trump administration have floated, including a tax on capital inflows or foreign holdings of U.S. assets, or a restructuring and maturity extension of U.S. debt held by foreigners (Mar-a-lago accord), a weaker dollar will make such policies less likely to pursued. Anecdotal evidence suggests that it was the unusual instability and volatility of the U.S. treasury that led the Trump administration to suspend tariffs in April. The Treasury will be opposed to any market-destabilizing financial policies aimed at further weakening the dollar, and even the president is likely to balk given the April events.

> During the electoral campaign, Donald Trump floated a tax foreign capital inflows. Members of the Trump administration have floated the idea of asking allies to restructure their holdings of U.S. government debt to reduce U.S. interest payments and possibly weaken the dollar. Congress almost approved a so-called “revenge tax” in the context of the recent budget reconciliation bill that would have allowed the U.S. authorities to impose additional, targeted taxes on foreign holdings of U.S. assets. Any of these measures has the potential to seriously undermine foreign investor confidence, raising the risk of significant dollar and U.S. treasury market volatility.