A customer at a food market in Palma, Mallorca, Spain.
Andreil Dakov/Bloomberg via Getty Images
There are groups of Americans who may benefit as economists are sounding alarms about the impact of President Donald Trump’s tariff policies on consumers and the US economy. Tourists travel abroad.
This is due to the impact of tariffs on the US dollar and other global currencies. Economists expect tariffs imposed on foreign imports could strengthen the US dollar and potentially weaken major currencies like the euro.
In such cases, travelers have more purchasing power overseas in 2025, the economist said. Their dollars are further expanding into purchasing such as accommodation, dining out, and guided tours derived from local currency.
“All other equal tariffs are suitable for the US dollar,” said James Reilly, senior market economist at Capital Economics.
The US dollar rose amid tariff threat
The nominal broad US dollar index for January reached its highest monthly level, at least up to 2006. The index measures the dollar’s strength against currencies of major US trading partners, including the euro, Canadian dollar, and Japanese yen.
Meanwhile, the ICE US Dollar Index (DXY) is another general measure of US dollar strength — an increase of more than 3% since Trump’s election day victory.
Trump submitted plans on Thursday to impose retaliatory tariffs on trading partners across countries. Certain taxation will depend on the results of the Department of Commerce review, which is expected to be completed by April 1st.
Meanwhile, Trump is leviing an additional 10% tariff on Chinese products. The 25% obligation for all steel and aluminum imports is expected to come into effect on March 4th. Additionally, the 25% tariffs in Canada and Mexico could come into effect in March after being suspended for 30 days.
The Canadian dollar provides a recent example of the potential impact of tariffs, Riley said.
On February 4, when Canadian tariffs were set to take effect, the US dollar surged to its highest level against the Canadian dollar in at least 10 years.
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The 2018-19 trade war with China during Trump’s first term also provides insight into the impact of tariffs on currencies, JP Morgan Global Market Strategist wrote in October.
The Trump administration retaliated by increasing tariffs on Chinese goods, an average of 3% to 19% between 2018-19, and increasing tariffs on US exports from 7% to 21%, said JP Morgan The strategist wrote.
Other factors also influenced currency movements, but trade policy uncertainty “had a tendency to strengthen the dollar,” JP Morgan reported. The DXY index rose to 10% during the 2018 tariff announcement window and rose 4% in 2019, they wrote.
Why are tariffs good for US dollars?
Tariffs can strengthen the dollar against other currencies in several ways, even those threats, Riley explained.
One important way to do this is through interest rates, particularly the difference between interest rates in one country and another, he said.
Tariffs are generally considered inflation, as import duties are expected to raise consumer prices, at least in the short term, the economist said.
The Federal Reserve could continue to raise interest rates to maintain the lid on US inflation. This has not yet returned to policymakers’ target levels after rising prices during the pandemic era.
“We’re hoping for US dollars [U.S. dollar] “In the short term, we are primarily to maintain strong ties to what lies behind our inflation policies, especially tariffs,” Bank of America’s currency analyst wrote in a memo on Friday.
(Their analysis was from “G10” countries: Belgium, Canada, France, Germany, Italy, Japan, Netherlands, Sweden, Switzerland, UK, and the United States)
Based on available information about Trump’s retaliation tariff plans, the average effective tariff rate for all US imports is currently rising from below 3% to around 20%. In 2025, Paul Ashworth, North American economist in capital economics, was estimated on Thursday.
Conversely, other economies will likely suffer from US taxation, Riley said.
For example, consider Europe.
As a result, Europe will have fewer exports to the US, which will have a negative impact on the European economy, he said. This will increase the likelihood that the European Central Bank will cut interest rates to strengthen the economy, Riley said.
The wider interest rate difference is attributed to rising US interest rates and lower European interest rates.
Such dynamics lead investors to move US assets (like US Treasury bonds) to US Treasury assets in search of higher relative profits, and sell Euro-religious assets. It is believed that they support assets controlled by the dollar.
In this case, increased demand for the US dollar and lower demand for the euro could lead to a stronger dollar, he said.
Sterling, the euro and British pound, is particularly sensitive to such interest differences, but emerging market currencies are not, Riley said.
Will the dollar be weaker later this year?
Of course, there is considerable uncertainty about how the US will apply tariffs to other countries and whether the proposed tax will be effective. Economists say retaliatory tariffs from trading partners could slow down the US dollar’s cuts.
If the world retaliates against the US and these trade policies “damage to the US economy,” the dollar could weaken later in the year, analysts at Bank of America wrote.
In fact, most investors have been able to USD 45% and 24% in the first or second quarter of 2025, according to a US survey of banks conducted between February 7th and February 12th. We expect strength to peak (polls were of 52 fund managers in the UK, Continental Europe, Asia and the US)
But in general, most countries rely on the US more than they have for trade, Riley said.
“So they can’t retaliate to the same extent as the US,” he said.
