The US's national debt crisis won't go away without a dollar crash unlike any other

The United States is staring at a brutal truth in 2025: its $918 billion trade deficit isn’t going anywhere unless the dollar drops harder than it ever has, and President Donald Trump’s White House seems fully aware of what it’ll take.

Washington’s obsession with debt elimination now depends on triggering a dollar collapse strong enough to rip through global markets and drag the US trade gap with it.

According to Reuters, the administration believes the dollar’s overinflated strength has let foreign economies flood the US with goods for decades, while American exports keep getting priced out.

Trump has said these trade imbalances prove America’s been “ripped off” for years, and now his team is trying to hammer that out of the system. 

Leading that push is Stephen Miran, his top economic adviser, who in a detailed paper last fall titled “A User’s Guide to Restructuring the Global Trading System”, argued that the dollar is “persistently over-valued.” Stephen called for “sweeping tariffs and a shift away from strong dollar policy” as the only way to rewrite the rules.

Trump’s team bets on historic drop

This year, the greenback has already lost close to 10% of its value. The reasons are clear: worries about US debt, global investors stepping back from Treasuries, and the fading belief that America is still the safest place to park money.

But the trade deficit hasn’t moved. During Trump’s first term, a 15% USD drop didn’t move the deficit either—it stayed stuck between 2.5% and 3.0% of GDP until COVID hit. So no one in Trump’s camp is expecting soft moves to fix anything now. The White House is going for scale.

To understand what kind of dollar fall might actually work, rewind to 1987. The US trade gap had climbed to a then-record 3.1% of GDP. But by the early ’90s, it nearly vanished. That was the dollar’s 50% collapse from 1985 to 1987, engineered through a deal called the Plaza Accord. 

It involved the US and other major economies deliberately tanking the dollar to rebalance trade. That’s the only time in the last 50 years when a major dollar fall actually aligned with a shrinking deficit. The other big crashes? Useless.

Between 2002 and 2008, the dollar dropped 40%, but the trade deficit exploded, hitting a record 6% of GDP in 2005. It only shrank after the Great Recession, when US imports collapsed. That same pattern held in smaller crashes like the 1977-78 dip, the early ’90s fall, and other drops of around 20%.

No consistent impact. That’s why Trump’s team knows they’ll need both a deep dollar dive and an economic hit to actually crush the deficit.

White House eyes 25% drop despite risk

So how deep is deep enough? Andreas Steno Larsen, a hedge fund manager, says it’ll take a 20-25% dollar drop over the next two years to “vanish” the deficit. That’s massive. Peter Hooper at Deutsche Bank went even further, saying a 20-30% drop might only reduce the trade gap by 3% of GDP.

Peter explained that since the dollar has appreciated 40% in real terms since 2010, it’ll take that entire gain to be wiped out just to reset trade to zero balance.

None of that happens without pain. The United States has only run a trade surplus once in the last 50 years—in Q3 of 1980, and it was just 0.2% of GDP. It came during a recession. Same for the near-balances in 1982 and 1991-92. 

Every single one of those times, the narrowing gap came because economic growth collapsed, not because of currency policy. Americans just stopped buying stuff from abroad, and that shrank the deficit. That’s the same kind of slowdown Trump’s administration may be walking straight into.

Stephen knows this. Trump knows this. But the bet is clear. The US won’t stop importing more than it exports until the dollar loses enough value to reset trade flows. And the White House is willing to watch the dollar burn if that’s what it takes.

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