Why Ken Rogoff thinks Trump is wrong

When Kenneth Rogoff was growing up in Rochester, Kodak was king. It was the 1960s, the Great Yellow Father ruled the world of photography, and Rochester ranked among the wealthiest cities in the country.

Those days are long gone. When people speak of Kodak now, it’s often in the past tense. The company has fewer than 1,500 employees here, down from its peak of more than 60,000 in 1982. And Rochester? The city’s population has fallen from roughly 330,000 around 1950 to barely more than 200,000, its per-capita income ranks below the U.S. average, and the child poverty rate is among the highest in the nation.

Donald Trump thinks he knows why Rochester and many cities like it in America’s industrial heartland have taken it on the chin over the last half-century.

“For decades, our country has been looted, pillaged, raped and plundered by nations near and far, both friend and foe alike,” Trump said last month. Workers in this country “watched in anguish as foreign leaders have stolen our jobs, foreign cheaters have ransacked our factories and foreign scavengers have torn apart our once beautiful American dream.” Those remarks were part of Trump’s “Liberation Day” speech on April 2, when he announced a sweeping set of reciprocal tariffs that he promised would break down foreign trade barriers and “supercharge our domestic industrial base.”

Rogoff thinks Trump is wrong. A professor of economics at Harvard University and former chief economist at the International Monetary Fund, Rogoff told me last week that “the idea that we’re going to bring a lot of manufacturing jobs back is a bit of a joke. I mean, the future of manufacturing is in automation.

“And if the U.S. does become a manufacturing superpower,” he added, “it would be through automation, it wouldn’t be through providing the kind of jobs we used to have.”

I spoke with Rogoff after reading his new book, “Our Dollar, Your Problem,” which draws on his vast experience in global finance to examine the dollar’s rise to dominance in the postwar era as well as the challenges it faces now. (Kodak and Rochester appear a number of times in the pages.)

Rogoff says Trump also is mistaken in believing that the dollar’s status as the world’s reserve currency is a costly burden that has been a big factor in the decline of manufacturing in this country.

“I think the Trump administration’s claim that the dollar being a reserve currency has been a disadvantage is way overblown,” he said. “It’s a piece; I think a small piece.”

Kodak, of course, was not alone in its relentless decline over the last four decades. While some factors that drove its downsizing were unique to Kodak, the entire manufacturing sector shrank, here and nationwide. In 1990, the Rochester area had 125,000 manufacturing jobs; today, the number is around 50,000.

As Kodak’s woes mounted in the decades leading up to its 2012 bankruptcy, some—including the company’s management—often blamed the dollar’s strength, which made U.S. products more expensive abroad.

Rogoff notes, however, that the dollar’s value fluctuated over that period. Its peak strength occurred in the early and mid-1980s, “and I think Kodak was in steep decline already at that point. It had, you know, invented the digital camera and that was the beginning of the end.”

In his book, Rogoff writes that “the economy of Rochester was basically gutted by competition from Japan in the 1980s and 1990s.” He acknowledges that “one might argue that Kodak really failed because of internal management problems; it had trouble pivoting in a fast-moving global economy.” But he adds: “Whatever the reality, it is probably fair to say that Japanese competition accelerated Rochester’s decline.”

In the early 1980s, the dollar had appreciated by roughly 50 percent against the Japanese yen. The advantage that gave Kodak’s Japanese competitors in large measure disappeared after the Plaza Accord in September 1985, when the U.S. and its chief trading partners agreed to depreciate the dollar. By the end of 1987, the dollar’s value against the yen had fallen by half.

“I’m not going to say it’s nothing,” Rogoff said of currency exchange rates as a factor in Kodak’s decline, “but it’s not the dominant reason.”

From chess to economics

In the early 1980s, Rogoff had just started his career as economist. His original path had been quite different, charted by his passion for chess. At 14, he already was a U.S. master and New York State Open champion; two years later, he became U.S. under-21 champion. Rogoff missed most of his final two years at East High School when he left for Europe, where he lived off his prize winnings. He became an International Master in 1974, and four years later was awarded the highest title in chess, International Grandmaster.

Rogoff’s chess career eventually took a back seat to his studies, first at Yale University (which “decided to ignore the many holes in my high school transcript,” he notes in his Harvard biography) and then at the Massachusetts Institute of Technology. He worked as an economist in the Federal Reserve system and at the IMF, then in 1985 accepted the first of several academic positions that eventually led to Harvard, with a stint as IMF chief economist and director of research in 2001-2003.

Rogoff weaves his own story, especially his encounters with some of the most notable figures in politics and financial policy over the last several decades, into “Our Dollar, Your Problem.” While fairly technical at times, it’s sprinkled with humerous asides, such as his reference to the 2009 book he wrote with Carmen Reinhart, “This Time Is Different,” which “improbably reached number 4 on Amazon, just behind the three books of The Girl with the Dragon Tattoo series; then again those books have sex and violence.”

The new book’s central argument is that the dollar’s dominance, an “exorbitant privilege” (a phrase coined in the 1960s by then French finance minister Valery Giscard d’Estaing) that gives the U.S. a broad array of competitive advantages, should not be taken for granted and may already be past peak.

“U.S. policymakers and smug economic commentators take on blind faith that we are in a pax dollar era that everyone should be grateful for and that can be relied on to produce stability and growth for the indefinite future,” he writes. “Most of the world, even America’s friends, do not share this perspective, which will eventually be a problem. … The notion that we will almost always live in a world of ultra-low inflation and interest rates, and stable currency exchange rates, is wishful thinking.”

The mighty dollar

Before explaining exactly how the Pax Dollar era might end, Rogoff describes how the “greenback rules the global financial system today like no currency before it.” Of all foreign exchange transactions, 90 percent involve the dollar. More than 40 percent of global goods trade is priced in dollars (which actually understates the figure, he notes, because trade between eurozone members is counted as international trade).

The dollar’s lofty status is the product of many factors—among them our “undeniably privileged position” after the destruction of the first and second world wars, openness to trade and finance, and rule of law—that reinforce one another. And while the dollar has faced challengers (the Japanese yen, the euro and, most recently, China’s renminbi), none so far have been able to dislodge it.

For Trump, the dollar’s strength has long been a bugbear. “Our economy is going to hell. You have to see what’s going to happen with the outflow of jobs, with the dollar, the way it’s situated,” he said last year on the campaign trail. “Because the dollar is set for China and Japan and other countries to do great.”

And he’s surrounded by people who share this view. At a 2023 hearing with Federal Reserve Chair Jerome Powell, JD Vance complained that the dollar’s role as a global reserve currency has fed Americans’ “mass consumption of mostly useless imports” while leaving us with a “hollowed-out industrial base.” Stephen Miran, chair of Trump’s Council of Economic Advisers, believes “from a trade perspective, the dollar is persistently overvalued, in large part because dollar assets function as the world’s reserve currency.” He has proposed a “Mar-a-Lago Accord” among the U.S. and its trading partners to bring down the dollar’s value.

Rogoff completed “Our Dollar, Your Problem” before Trump’s victory last November was certain, so it doesn’t directly address what’s happened since Jan. 20 (though he has done so in more recent opinion pieces). But the book makes clear his belief that while global currency dominance “is not quite the unalloyed benefit that it is sometimes portrayed as,” its value to the U.S. is very substantial. A chief benefit is “that foreigners are willing to hold surprisingly large quantities of U.S. debt, which helps drive down the interest rates the U.S. government has to pay.” (All told, he estimates the figure to be around $8.2 trillion.) And it’s not just the government; interest rates for mortgages, car loans and the like also are lower for Americans. Other benefits include the ability to have broad access to global capital markets when times get tough and unparalleled access to information from the global financial system.

If this is a critical inflection point for dollar dominance, Rogoff writes, underlying factors include the “huge appetite for alternative transactions vehicles among friends and foes alike, outside the prying eyes and the global reach of U.S. authorities.” He also cites the “the U.S.’s promiscuous use of financial sanctions” and the rise of cryptocurrencies and central bank digital currencies, though he believes “there is absolutely no chance that any cryptocurrency will supplant the dollar as the dominant currency in legal, tax-compliant transactions, except perhaps in a post-nuclear apocalyptic Mad Max dystopian future.”

End of the pax dollar era?

What happens outside our shores, however, is not the greatest threat to the dollar’s supremacy, Rogoff argues in the book. The dangers “come from within, and it does not matter which party is in power, especially if one or the other has too much of it.” In other words, even if Trump weren’t so explicitly bent on kneecapping America’s currency, the end of the pax dollar era could be our own doing. He points in particular to the “false sense” that ultra-low real interest rates are here to stay and “unwarranted complacency” about the risk of high inflation—another bout, he writes, “over the next five to ten years is not only possible but likely, especially if there is another major shock such as a cyber war or pandemic.”

When we spoke, Rogoff told me “the dollar colonized large parts of the world in the way no previous currency’s ever done. It was penetrating China, India, Latin America, Asia. In some sense when you get that high, the only way to go is down. And a lot of countries in the world hate it. They don’t like all the information it gives us. They don’t like all the power it gives us.

“But it’s also the case that there’s rot at the middle. And that’s in terms of our unwillingness to rein in our budget deficits, which has suddenly become a much bigger issue because interest rates have gone up.”

He added: “The odds of the U.S. having some kind of serious problem are going up. You have to acknowledge it. We seem to have—it’s not that we’re bankrupt, we’re rich—but we have no particular desire to rein in our deficits or deal with our high debt.” (The Congressional Budget Office has projected that federal debt held by the public will larger than the U.S. economy by 2026—and that doesn’t factor in the Republicans’ costly “big, beautiful bill” now before Congress.)

Even if the worst doesn’t come to pass, as Europe moves toward greater independence and China continues to decouple from the dollar (with the ripple effect in Asia, which is half of the dollar bloc globally), the world will head “toward what’s probably a more natural equilibrium.”

Still, Rogoff concludes, “it’s going to be painful for the United States.”

Paul Ericson is Rochester Beacon executive editor.

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