From CNBC: 2025-02-14 14:00:04

Economists warn about the impact of Trump’s tariffs on the U.S. economy, but travelers may benefit as tariffs strengthen the dollar. Tourists could have more buying power overseas in 2025, stretching their dollar on purchases in local currency for lodging, dining, and tours.

The U.S. dollar has surged in response to tariff threats, hitting record highs. Trump plans retaliatory tariffs on a country-by-country basis, with specific levies depending on Commerce Department reviews. Additional tariffs on Chinese goods and steel/aluminum imports, as well as Canada and Mexico, are set to take effect.

A trade war with China during Trump’s first term showed that tariffs can bolster the dollar compared to other currencies. The uncertainty of trade policies tends to strengthen the dollar. Tariffs are viewed as inflationary, leading to elevated interest rates to control inflation. The U.S. dollar is expected to remain strong due to inflationary policies and tariffs.

Tariffs could lead to a wider interest-rate differential between the U.S. and Europe, causing investors to move money into U.S. assets. This scenario could result in a stronger dollar and weaker euro. The euro and British pound are sensitive to interest-rate differentials, while emerging-market currencies are less so.

Uncertainty remains about the application and effectiveness of proposed tariffs. Retaliatory tariffs from trading partners could weaken the dollar later in the year if trade policies negatively impact the U.S. economy. Most investors predict the U.S. dollar’s strength will peak in the first or second quarter of 2025. A poll of 52 fund managers from the U.K., Continental Europe, Asia, and the U.S. revealed insights on global trade dependencies. Most countries are more reliant on the U.S. for trade than the other way around. This could limit their ability to retaliate against U.S. trade actions, according to analyst Reilly.

Read more: Here’s a potential winner from Trump tariffs: American tourists traveling abroad