U.S. Dollar Drop Adding to Trump's Trade Wall

By Tom Parkin

June 22nd, 2025

BURLINGTON, ON

Buying a U.S. dollar now costs 7 cents Canadian less than on January 1, A falling dollar may be the goal.

U.S. dollar declines against Canadian dollar and Euro

Value of one U.S. dollar and one Euro in Canadian dollars

A Canadian could buy a U.S. dollar for C$1.44 on January 1, but it cost just C$1.37 last week. And the greenback has dropped even more against the Euro, which cost C$1.48 at the year’s start but has risen to C$1.60 recently.

The U.S. dollar’s drop heightens the trade wall U.S. President Trump is building with tariffs.

There’s good reason to believe the low dollar is a Trump policy goal — one Canadian workers will need options to navigate.

Trump pushes for interest rate cut, despite inflation risk

Higher interest rates are supposed to maintain currency strength, but the widening differential between rates in the U.S. and other nations is clearly not enough firepower to do the job.

The U.S. central bank’s policy interest rate remains unchanged in 2025, holding at 4.50 per cent, significantly higher the Bank of Canada at 2.75 per cent or the European Central Bank at 2.15 per cent rate. Yet the dollar falls.

And despite the dollars’ depreciation, Trump is very publicly badgering Jerome Powell, chair of the U.S. central bank, to cut rates, which would accelerate the dollar’s decline.

Powell has resisted Trump’s rate cut demands, citing the need to attack inflation, which he says Trump’s tariff wall is fuelling. In June, inflation was 2.0 per cent in the Euro area and 1.9 per cent in Canada, but 2.7 per cent in the United States, and has gained 0.4 points since April, when Trump launched his “Liberation Day.”

U.S. inflation rebounds

Inflation rates in Canada, Euro area and United States

Inflation rates in Canada, Euro area and United States

Many commentators have suggested Trump’s feud with Powell is political theatre, intended to distract from downgrades in GDP expectations due to Trump’s tariff war. U.S. GDP fell 0.5 per cent (annualized) in the first quarter of 2025. In March the OECD forecast 2.2 per cent U.S. GDP growth for 2025 but in June that forecast was downgraded to 1.6 per cent.

High level support for a low level dollar

But there are reasons to believe Trump authentically wants to devalue the dollar, even if it means higher inflation. And higher inflation may even be welcome.

Stephen Miran, chair of Trump’s Council of Economic Advisers, has been a public advocate of a devalued U.S. dollar to protect U.S. producers from foreign competition. In November, Miran published “A Users Guide to Restructuring the Global Trading System,” which proposed a “Mar a Lago Accord” with other governments to co-ordinate a devaluation of the U.S. dollar. The next month, Trump appointed Miran to lead his economic advisors.

It doesn’t appear Trump has taken any steps to operationalize Miran’s theorized Accord. Regardless, Miran’s appointment suggests real support within the Trump administration for a permanently lower U.S. dollar.

A policy goal of dollar depreciation holds risks for the U.S. economy. It will cause capital to shift elsewhere, strengthen competitor countries’ finance industries, and perhaps even undermine the American dollar’s position as the main currency held in central bank reserves around the world.

But higher inflation may be something Trump finds useful to inflate away the U.S. debt and reduce the interest costs of servicing it.

Against a permanent trade wall, Canadians need options

If, despite the risk, Trump is devaluing the U.S. dollar to heighten his tariff wall, Canadians will need to start looking at the situation differently.

As a trading nation, Canada is challenged to find new strategies to make our way in a world where the United States is retreating behind trade wall. But Canadians deserves more options than Prime Minister Mark Carney’s plan to cut public programs, reduce taxes and eliminate guardrails on mega-projects.

And alternatives won’t come from the Poilievre Conservatives, who are united with Carney on those goals.