Renowned economic historian Harold James has cautioned against the potential for a currency crisis should the Trump administration attempt to instigate a dollar devaluation. Speaking to the business magazine “Capital”, Professor James of Princeton University warned that such a move, particularly given the United States’ substantial debt, could severely destabilize the nation’s financial standing.
James explained that a deliberate devaluation, while seemingly designed to enhance the competitiveness of U.S. products, would likely deter foreign investment in U.S. securities. This would subsequently drive interest rates upwards, escalating the burden of debt servicing for the government. He noted that debt servicing costs currently exceed U.S. military expenditures and that further increases in interest rates would risk sending the American fiscal system into disarray.
The Trump administration’s recent tariff threats have been interpreted by some as part of a broader strategy to pressure other nations into devaluing their currencies, thereby indirectly supporting U.S. exports. However, Professor James suggests that the trajectory of current U.S. policies is more likely to benefit Europe in the medium term.
He anticipates a shift in capital markets, with investment flowing from the United States towards Europe, a trend driven by investors perceiving Europe as a region of relative stability. This pressure emanating from the United States, he believes, may also accelerate the pace of reform within the European Union.
“The developments in the U.S. will accelerate many things in Europe” James stated, citing the banking and capital markets union as a potential area for expedited progress. He also emphasized the likely need for increased and better coordinated defense spending across the EU.