US Tariffs Have Not Yet Had an Impact
Given the extent of U.S. intervention in international trade, it is surprising how little this intervention is reflected in the exchange rates of the U.S. dollar.
The USD continues to weaken proportionally when compared to both the euro and Asian currencies.
This could come to a halt in the coming weeks if the U.S. follows through on its threat to impose higher tariffs on Russian oil buyers. This would primarily affect India and other buyers who benefit from the lower price of Russian oil compared to oil on the world market. Such sanctions could lead to higher energy prices globally, which would weigh on the world economy. In my opinion, OPEC’s recent announcement to expand production is an indication that this scenario is becoming more likely.
In the Long Term, Asian Currencies are Undervalued Against the U.S. Dollar
After a long, one-sided development, it seems absurd to think that a counterdevelopment will occur, not just temporarily, but substantially and in the long term.
Upon examining fundamental data, it’s clear that Asian countries have many strengths.
- Positive demographic development
- Low levels of public and private debt
- High economic growth
- Low inflation, especially compared to previous decades
- Increasing horizontal economic integration
Asian Currencies Still Have Plenty of Room for Growth
Performance over the last 14 years has been very weak. During this period, Asia’s economic fundamentals have improved significantly, while the US has experienced a massive expansion of debt. Asian assets are also much cheaper than their American counterparts.
Many people underestimate the amount of Asian investment capital that has migrated to the US. If doubts grow that the U.S. is a safe and above-average investment market, the flow of capital into the U.S. will halt (which is in the Trump administration’s interest) and there may be an outflow of capital from the U.S. (which is also in the U.S.’s interest, as it makes the U.S. dollar cheaper and its own competitiveness stronger).
In the Long Term, the US has Made Geopolitical Mistakes
Correcting the fundamental distortions in the international trading system is not the main issue. However, the problem is how the correction is made. Specifically, it is done through unilateral blackmail and the enforcement of power interests. This is a viable path, but it leads to other countries reorienting their interests, seeking other paths, and pursuing them.
For the U.S., this means the long-term decline of the USD’s importance, as demand for it will steadily decrease. I have described this as an increasingly realistic scenario for over a year, partly due to the significant growth in intra-Asian trade volumes.
