What Happens to the Dollar/Shekel exchange rate When Tariffs Are Imposed?
Short Answer:
It’s complicated — but initially, the dollar may strengthen, even as the stock market crashes. However, longer term, the dollar could weaken if the trade war escalates and triggers a recession.
Let’s unpack that.
Step 1: What Are Tariffs, Really?
Tariffs are taxes on imported goods. When the U.S. imposes tariffs, foreign products become more expensive. The idea is to make domestic products more competitive and protect American industries.
But it’s not that simple in a deeply globalized economy. Tariffs affect everyone, especially consumers and companies that rely on global supply chains.
Step 2: The Direct Effects on the Economy
Tariffs can:
• Increase costs for American businesses and consumers.
• Reduce corporate profits, especially in sectors like manufacturing, tech, and retail.
• Trigger retaliation from other countries, hurting U.S. exporters.
• Ultimately, slow economic growth or even tip the economy into recession. J.P. Morgan recently raised its estimate of a U.S. recession to 60%, up from 40% just weeks prior — reflecting growing concern among institutional investors.
So, if markets crash after tariffs are announced, that’s Wall Street’s way of saying: “We don’t like where this is heading.”
Step 3: So Why Might the Dollar Strengthen at First?
Here’s the twist. Despite the doom and gloom:
When stocks fall , when the world panics, when everything feels uncertain…Investors typically rush into safe-haven assets.
And the U.S. dollar? Still considered the safest of the safe — the world’s reserve currency.
So in the short term, especially if foreign investors are selling off U.S. stocks, they still need dollars to do it. That demand props up the dollar.
Also: If Trump’s tariffs lead to lower imports, there are fewer dollars flowing out of the country — which also boosts the currency (at least temporarily).
Step 4: But What About the Long Term?
If tariffs spiral into a full-blown trade war or trigger a serious recession, the story changes:
• U.S. interest rates could drop as the Fed cuts rates to support the economy.
• Confidence in U.S. growth could decline.
• Other countries might diversify away from the dollar and start selling dollar reserves.
All that could weaken the dollar over time — especially if investors feel the trade war is self-inflicted and unsustainable.
Step 5: Bibi’s visit
Meanwhile, Israeli Prime Minister Benjamin Netanyahu is already en-route to Washington for talks with President Trump (the first of any leader) — and even the perception of diplomatic coordination can help calm markets. For the shekel, this kind of high-level engagement may slow or soften any immediate weakening, at least in the short term.
As always in global markets, it’s not just what policies are announced — but how investors react, and how long the storm lasts. As Bill Ackman stated on X, “One thing’s for sure: Monday will be one of the most fascinating days in American economic history”
