by Vivekanand Jayakumar
The Hill
The standard textbook viewpoint implied that the imposition of tariffs by the U.S. would lead to a strengthening of the American dollar against the currencies of its major trading partners. Since tariffs make imports more expensive, they can potentially reduce the volume of imports and thus create less demand for foreign currencies to pay for them.
Tariffs can also lead to higher domestic prices and possibly generate an increase in short-term inflation expectations. Consequently, the Federal Reserve would be expected to maintain a tighter monetary policy relative to other major central banks, which is usually a dollar-positive outcome.