Investors should brace for increased volatility in global markets, with the possibility that ongoing trade tensions could escalate into full-scale currency wars under former President Donald Trump’s leadership, according to Nigel Green, CEO of deVere Group, one of the world’s largest financial advisory firms.
While trade wars have been the primary focus of recent discussions, Green emphasizes that the prospect of currency wars—where nations deliberately devalue their currencies to gain a competitive edge—has been largely overlooked.
Green notes that Trump’s rhetoric and policy actions during his first term indicated a heightened focus on both tariffs and currency dynamics, two areas that could cause significant disruption to financial markets and international trade. “In Trump’s previous term, the administration often expressed dissatisfaction with a strong dollar, accusing countries like China and members of the European Union of manipulating their currencies unfairly. This dynamic turned currency movements into political tools,” Green explains.
As economic divergence deepens globally, Green warns that the foundations for a currency war are already being laid. “A new Trump administration will likely continue to rely heavily on tariffs and protectionist measures, which historically have prompted retaliatory actions through trade as well as currency devaluation. Investors must be aware of these risks and adjust their strategies accordingly.”
The strength of the US dollar has surged in recent months, driven by a cautious Federal Reserve stance on interest rate cuts and a robust growth outlook for the US economy. However, Green suggests that the very strength of the dollar could exacerbate tensions. “A strong dollar is often seen as a disadvantage for US exports, and under Trump’s leadership, there may be increased pressure on trading partners, particularly China and Europe, to weaken their currencies.”
Green highlights the contrasting economic conditions in the US and Europe, which could amplify the dollar’s strength. While the US faces persistent inflation and steady growth, prompting a cautious Fed policy, Europe grapples with stagnation and disinflation risks. These differences could push the Federal Reserve to maintain higher rates, further strengthening the dollar, while the European Central Bank (ECB) may adopt a looser monetary policy, leaving the euro vulnerable.
For investors, the interaction of trade and currency shifts presents both risks and opportunities. If Trump follows through with aggressive tariff policies, major trading partners like China and Europe could see their economies suffer. In response, these regions might lower interest rates and weaken their currencies. For instance, China may use the renminbi as a tool to mitigate the economic impact of tariffs, while the ECB might push deposit rates even deeper into negative territory to combat a potential recession.
The knock-on effects could be substantial. Weaker currencies in China and Europe would likely push the dollar higher, prompting more aggressive reactions from the US. Green warns that this could set off a chaotic cycle where tariffs lead to currency devaluations, followed by retaliatory measures that disrupt global supply chains and create inflationary pressures in the US.
“The potential for a full-blown trade and currency war is very real,” Green concludes. “Trump’s policies will create clear winners and losers across global markets, and the trajectory of the dollar will be crucial. Investors who fail to prepare for the fallout from trade and currency conflicts may find themselves unprepared in a highly volatile environment.”
