"Trump's tariff war…Undermining the U.S.'s advantage as the reserve currency issuer"

"U.S., huge dollar-denominated external debt

If tariffs raise the dollar's value, it's a boomerang"

The hot topic among economists attending the 2026 American Economic Association (AEA) annual meeting, which began a three-day schedule in Philadelphia, was 'Trump (Donald Trump, President of the United States).' Sessions analyzing the various policies of President Trump and their economic effects followed one another.

The most watched session on the first day was "The Dollar After the Tariff War," with Kenneth Rogoff, Professor at Harvard University, giving the opening presentation. Itskhoki, who won the John Bates Clark Medal in 2022 and is considered one of the most notable researchers in international finance recently, argued via mathematical modeling whether introducing tariffs to eliminate trade deficits is appropriate, saying, "Although conventional wisdom is that tariff rates should be raised to eliminate trade deficits, in the case of the United States, high tariff rates are not appropriate."

He argued that because the United States has huge dollar-denominated external debt (cross-border assets), if tariff policy causes the dollar's value to rise, the burden from increased debt costs becomes greater. Maintaining high tariff rates can reduce the trade deficit, but he said that would be a result of "the United States becoming poorer due to increased debt burden," not the revitalization of manufacturing.

Next, Sevnem Kalemli Ozkan, Professor at Brown University, who spoke as the next presenter, pointed out that uncertainty over tariff policy is negatively affecting the status of the U.S. dollar. He explained, "As in Trump's first administration, last year tariffs should have caused the dollar to appreciate, but instead the dollar weakened," adding, "The uncertainty about how tariff policy will change led to a decline in the dollar's value."

Linda Tesar, Professor at the University of Michigan, who joined as a discussant for Ozkan, also remarked, "There is much evidence that when tariffs are imposed, demand for domestic goods increases and the value of the domestic currency rises," and added, "Moreover, the United States tends to see strong dollar appreciation in crises due to safe-haven asset preferences, so we need to see why it went weak." She interpreted this to mean, "Uncertainty was large enough to outweigh the appreciation pressure from tariff imposition."

Professor Tesar emphasized, "You cannot look at tariffs alone," saying, "the risk of the Marrakesh Agreement being implemented, threats to the independence of the U.S. central bank (Fed), taxation of foreign investors, increases in public debt, ally breakdowns, and various other factors have increased uncertainty."

Economists noted that the 'scale' of tariffs is also an important variable. This is because the 30% nominal tariff rate initially proposed by the Trump administration is not actually being maintained. In this regard, Ozkan said, "If tariffs are small, the impact is also small," adding, "There are studies that suggest the effect of a 10% tariff would be negligible."

Philadelphia = Lee Sang-eun, correspondent selee@hankyung.com