The U.S. dollar’s sharp fall this week to its lowest level in nearly four years, while partly self-inflicted and exactly what U.S. President Donald Trump wants, may not be the best thing for the health of the world’s largest economy.

The dollar cratered on Tuesday, capping a week of steady decline that got briefly worse after Trump said a sliding dollar is “great.” The dollar has gotten weaker across the board, whether measured against a broad basket of other currencies, emerging-market, currencies, or big near-peer currencies such as the euro, against which the dollar has slid around 13 percent since Trump took office.

The U.S. dollar’s sharp fall this week to its lowest level in nearly four years, while partly self-inflicted and exactly what U.S. President Donald Trump wants, may not be the best thing for the health of the world’s largest economy.

The dollar cratered on Tuesday, capping a week of steady decline that got briefly worse after Trump said a sliding dollar is “great.” The dollar has gotten weaker across the board, whether measured against a broad basket of other currencies, emerging-market, currencies, or big near-peer currencies such as theeuro, against which the dollar has slid around 13 percent since Trump took office.

The dollar’s doldrums come in the middle, and partially as a result, of a number of other tumultuous events in U.S. economic policy. 

The Trump administration threatened to take a NATO territory by force and threatened one of its biggest trading partners—the European Union—with higher tariffs before suddenly backing down, but that was enough to rattle global confidence.

The Trump administration has sought to undermine the independence of the Federal Reserve, the country’s central bank, by attempting to fire one of its governors and intimidating the chairman. Those moves have rattled confidence in U.S. economic stewardship. U.S. Treasury Secretary Scott Bessent, in a job that has traditionally included shepherding the nation’s currency, is doing such a poor job that the price of gold (an alternative to the dollar) has reached record levels of more than $5,000 an ounce.

In just the past week, Trump has also threatened new and further tariffs on Canada and South Korea—both U.S. free-trade partners—for unclearreasons. On Wednesday, Germany’s financial regulator noted that markets may begin to question the role of the U.S. dollar as the global reserve currency.

A flight away from the dollar would, at the very least, concern most prior U.S. administrations, but this is what Trump campaigned for and has actively sought for years. The thinking behind the weak-dollar push seems to be that a devalued currency will make it easier for U.S. companies to compete abroad against other countries that, the administration and many economists contend, have kept their currencies artificially low. But exports account for just under 11 percent of U.S. GDP.

A weaker dollar would not be great news for the other 90 percent of the economy because it would mean higher costs for imports, likely stickier inflation, and less leeway for the Federal Reserve to ease interest rates later this year as planned. If affordability and lower interest rates were Trump’s economic goals, and they are, a weaker dollar would seem to be the wrong medicine.

As to why the dollar is falling, one reasonable answer, according to Robin Brooks of the Brookings Institution, is “policy chaos”—most recently, but not exclusively, the fight with the EU over Greenland. In a nutshell, in much the same way that countries are hedging their geopolitical exposure to the United States—such as the EU and India inking a historic trade and defense deal as part of a quest for new partners in an uncertain world—foreigners are hedging their bets against too much exposure to the dollar. 

Surely, though, the one benefit of a cheaper dollar is that U.S. exports will be that much more competitive overseas? If Europeans only need 83 cents to buy U.S. goods that cost them 100 cents a year ago, then that must accelerate U.S. exports even as it curbs imports, thus tackling the persistent trade deficits that Trump has declared a “national emergency.” (The U.S. Supreme Court is going to rule on that case, maybe next month.)

On paper, and if all else is equal, a cheaper dollar would be good for exports. However, not all else is equal.

There are a lot of non-currency barriers to greater U.S. exports. Consumer preferences are famously one: Oversized SUVs and light trucks are not prized in Europe or Japan. Regulatory restrictions are another, as with many limits on agricultural exports, whether to Europe or Asia. And then there are geopolitical barriers, such as the trade war that Trump intensified with China not once but twice, which resulted in the loss of the main export outlet for the huge U.S. agricultural sector. U.S. agricultural exports to China fell from $36 billion in 2022 to $16 billion in 2025, and they are still falling.

The other problem with hoping that a cheap dollar will drive increased exports is that it takes things to make things, and one-third of the things that it takes (inputs for manufacturing) are themselves imported. Since those inputs are getting more expensive, due both to a weaker dollar and the self-imposed import duties on nearly every country in the world, there is less benefit than meets the eye, especially for industries such as pharmaceuticals, aerospace, cars and trucks, and petroleum products.

And then there is the stubborn math of the U.S. trade balance, which registers $1 trillion more imports than exports every year. With a weaker dollar, all those imports will be more expensive. And while the Trump administration would be happy to see them disappear, many imports are necessary (the U.S. oil patch genuinely needs imported tubes and pipes; European pharmaceuticals simply do not have U.S. equivalents yet) and cannot be jettisoned. 

So the weaker the dollar gets, the more concern there will be that relatively muted inflation (just under 3 percent) will inch back up again, right as the Federal Reserve was feeling comfortable on policy grounds with cutting interest rates further by the middle of 2026. If there is still an independent Fed by then—an open question, given the persecution of two key members of the bank’s board of governors and open worries about assaults on the central bank’s ability to operate without interference—that would probably mean standing pat on interest-rate cuts, which would mean higher bills for mortgages, auto loans, and the like. 

At the end of the day, the sliding dollar is just one imperfect referendum on how the world feels about Trump’s America. If greater exposure to the United States and the U.S. dollar were the dominant thought, greenbacks would be highly sought, gold would be getting cheaper, and U.S. debt would be getting cheaper. Quite the opposite seems to be the case—oddly enough, by design.