The U.S. Dollar: Short vs. Long Term

Hey all, Peter Zeihan here coming to you from Colorado. Today we’re going to talk about the US dollar and where it’s going to go short and long term. Again this is not not not investment advice. This is just where the geopolitics say that we’re going. First let’s talk long term because it’s a really simple story. As a rule, a country’s currency tracks its economic strength and its durability. 

And by that measure, the United States dollar really has nowhere to go but up for the next several decades. The big factor is, number one, the US military is the one that rules the seas. And even if everybody else were to put their militaries together, their navies together, and sail them against the United States, we’d probably only need two, maybe three aircraft carrier battle groups to take the whole thing down. 

Also, with very, very, very few exceptions, single digit exceptions, there are no ships, frigate navies, ships out there that have the capacity to even reach the United States. So the United States can go there, do whatever it wants, but nobody can come here. And that allows us to be the arbiter of really whatever it wants to be. Number two, demographics. 

As much as we are facing a demographic crunch at the moment, specifically is the baby boomers, which are the largest generation we’ve ever had, are now almost entirely retired. Our boomers had kids. We call them millennials, and they are now in the height of their consumption years. And then for the next 20 years, they’ll be at the height of their production years. 

And so we know we still have a relatively strong, stable and balanced economy moving forward that doesn’t exist in very many places elsewhere in the world. So whether you’re in Germany or China or Japan or Korea or Spain or Italy or Poland, we’re looking at a country where they basically already aged out. 

And there aren’t a lot of people under 50 relative to those over 50. So you know that the United States is really the only first world country of size, with the possible exception of New Zealand, where there really is a demographic story for normal economics going forward for the next several decades. Number three, resources. The United States is the only first world country with the exceptions of Australia and Norway and Canada, that are massive, not just producers, but exporters of food and energy products, which without those you can’t have a modern system. 

That doesn’t simply mean that cash is constantly flowing into the American network. It means that the United States never really has to worry about the building blocks of what it takes to make a modern economy functional. All right, what else? 

the last item is kind of, strength from weakness. Because of globalization, the United States is hollowed out a little bit when it comes to manufacturing. We still produce the most value out of manufacturing of any country in the world. But as the Chinese are facing demographic and geopolitical pressures and eventually will fade away, the United States needs to expand its manufacturing footprint massively, at least double it in order to prepare for that circumstance. 

That’s an inflationary story, but it’s also a massive growth story. So those four things together, the need to expand the manufacturing plant, the commodities position, the military position, the demographic position. This tells me that the US dollar has nowhere to go but up for decades. But that’s then, we all live in the now, and we have a lot of problems in the short term that are taking us absolutely the opposite direction. 

And all of those are caused by policy. So first up, the Trump administration’s decision to basically make immigration into the United States impossible. We have gone in the last 12 months from the first world country with the fastest growing population to something near the bottom. And for the first time in American history, 2025, we actually saw the US population drop. 

That is putting huge pressure on labor markets, especially when it comes to things like construction and health care that are slowing American growth, raising costs and pushing the dollar down. Second, the tariff policy, despite what it claims, it’s actually making manufacturing a lot more difficult in the United States. You see, there’s kind of two broad categories of manufacturing. 

Your relatively simple value add, like things like, say, furniture or making glue where there are only a half a dozen steps. And if you have a high flat tariff, you try to then move those steps into your country and consolidate. But then you have more complex manufacturing, like cars and computers and airplanes that have hundreds, if not thousands, if not tens of thousands of steps. 

And there is no country in the world where those are all under one roof. So if you put a high tariff in, then every intermediate good has to pay the tariff and it just makes more sense to move as many of those steps outside of the tariff umbrella as you possibly can, and then just import the finished product at the end, because then you only have to pay the tariff once. 

So what we’ve been seeing over the last year is industrial construction spending in the United States. Drop drop drop drop drop drop drop drop drop. And the only reason it hasn’t plunge is people are hoping, praying against all odds, that the Trump administration will eventually back down and these tariffs will go away. We’re now coming up on a year since they were put in place. 

We’ll hit that anniversary in the first week of April and we’ll probably see the drop off accelerate. So that boom, I was talking about where we needed to double our industrial plant. We’re actually going in the opposite direction right now, and that is forcing the United States to import to cover everything. And so we see the dollar going down. 

The third issue is how easy is it to do business in your country? The Republicans have traditionally been the pro-business, low regulation crowd, and the Trump administration has said that it’s not going to enforce the regulations that are on the book. It’s basically asking companies to lie on their tax forms and ignore the government’s policies as they currently stand. 

You see, there’s a big difference between Trump two and Trump one. In Trump one, they brought in people who knew about deregulation, and they had this idea that for every new regulation that came in, five had to be removed. And so we actually saw meaningful deregulation. But with this new administration, they haven’t brought in those people. 

They’re just not allowing new regulations to go in. So the old regulations from previous administrations are still there. And the people who would go through and winnow them out are not there. And we no longer have the capacity to implement new ones. So the regulatory structure is becoming slowly ever more divorced from the economic realities of the country. 

And there’s no one in place to fix that. So companies are being asked to just ignore the whole thing and saying that there won’t be any legal repercussions for that. At the same time as the, the legal structure becomes almost irrelevant to where we are now. On top of that, with the tariffs, we’ve now had over 5000 tariff changes since April 2nd of last year. 

The the game board is changing every day and companies literally don’t know what to do. And the collective decision is to try to do as little as possible. So while the rhetoric may say one thing, this is actually the most anti-business administration that the United States has had in my life. And business confidence and business activity and business expansion are all dropping instead of rising. All of those are bad for the dollar. 

And finally, there is a rule of law problem. The Republican Party is not what it once was. Donald Trump has exercised a number of factions national security securities, fiscal conservatives, business conservatives from the coalition and has actively campaigned against their champions in Congress. And what’s going on with Immigration and Customs Enforcement is a real big issue. 

Seeing Ice in places like Minneapolis has really jarred the business community, because they’ve always counted on the US government to enforce rule of law. We don’t have that anymore. In fact, Ice is operating in a way that every police chief has always told his or her officers to never do. You know, you’re never supposed to argue with the judge. 

You’re never supposed to argue with the prosecutors. You’re never supposed to recruit from gangs. You’re never supposed to wear a mask. You’re never supposed to draw a gun first. And no one really knows where federal law enforcement is going to be unless you’re looking at the FBI under a guy by the name of Cash Patel, who’s basically a conspiracy theorist. 

So the idea that there’s this stable structure undergirding everything that the federal government does is now gone, and businesses just don’t know how to react at all. You add in record deficit spending and the implications for the dollar are down, down, down, down, down. So we kind of have this perfect storm in the short run that is pushing the U.S. dollar down, even against the overarching long term trends that are pushing the dollar up. 

So I have no doubt that over decades, the dollar will rise and continue to. But I also have no doubt that over months the dollar will drop because the federal government is now actively, loudly declaring that that is their express goal. Now, the idea behind what the Trump administration is saying about dollar policy is their idea is that if the dollar gets weaker, then U.S. exports will increase. 

And ultimately, that’s one of the metrics that Donald Trump is obsessed with. But that also means for a country that imports manufactured products, it also means that we are looking at significantly higher inflation as a result of that policy in the short run. So short run, if you’re a dollar bull, it’s going to be a really rough ride if you’re a consumer. 

Things look a little rough because we’re seeing fewer products produced in the United States, and we’re seeing a hollowing out of the high end employment base that does the high end manufacturing that we’ve always excelled at. That might make good for exporters a little bit, but in the long run, we’re looking at a very different economic structure. And of course, as with everything, the challenge of getting from here to there is where we all live. 

And now an update. We’ve recorded this video before the Iran war started, and if you want to talk about something that threw a shock into the system to underline that there really wasn’t an option out there for financial investment. Outside the United States, this is what did it. And so we’ve seen the United States dollar rise over the last couple of weeks versus every major currency except for, I think, one, I think Canada is holding in there because it’s basically integrated with the U.S. system. 

However, I will underline that, markets are behaving grudgingly in this regard. They really don’t want to put their money in the U.S. dollar because of some of the policies that we have out of the Trump administration right now. So while, yes, the US dollar is rising versus pretty much everybody, only at a moderate pace, in most countries it’s 2% or less over two weeks of war. 

And now the Persian Gulf being shut for the entire time, it should be double digits. But there’s really only three markets where you’re seeing more than this 2% change. You’ve got Korea, which is uniquely exposed, South Africa, whose economy has always been really, wild and, erratic. And Indonesia, where the markets are relatively illiquid for a market of its size. 

So, yes, we are definitely looking at the long term effect here of the US dollar having nowhere to go but up. But also we’re seeing the damaging effects of the short term of no one really trusting to put their money in the United States system and showing that it has nowhere to go but down. The result is, at the moment, in a moment of global crisis, surprisingly small gains for the US dollar. 

I would love to say that the surprises me. It does not.