There are some signs that Trump’s persistent jawboning of the dollar may already be having an adverse effect on foreign demand for U.S. assets. While overall demand at auction has been up and down this year, foreign holdings of Treasuries have slumped to an almost 15-year low of 41 percent. China, the largest overseas creditor, has pulled back this year. Japan, the second biggest, has reduced its share to the lowest level since at least 2000.

Not Thrilled
In recent months, Trump has stepped up the rhetoric as the dollar has bounced off its lows. In an interview published by Reuters this week, Trump once again accused China and the European Union of manipulating their currencies. Last Friday, he also complained to wealthy Republican donors that he was “not thrilled” with the Federal Reserve’s interest-rate increases under Chairman Jerome Powell, which have boosted the dollar.

So what tools does Trump have at his disposal if he wanted to go beyond mere talk? The most direct would be for him to order the U.S. Treasury (via the New York Fed) to sell dollars and buy currencies like the yen and euro using its Exchange Stabilization Fund, according to Viraj Patel, an FX strategist at ING. But because the fund only holds $22 billion of dollar assets, the impact would likely be minimal. Any direct intervention that is larger and more ambitious in scope would also require congressional approval, he said.

However, Patel says there is one loophole Trump could exploit to get around the fund’s constraints and bypass Congress altogether: by declaring FX intervention a “national emergency.” By doing so, he could then force the Fed to use its own account to sell dollars. Such a move would be a long shot by any stretch of the imagination, but with Trump invoking national security to impose tariffs, Patel says he can’t “completely rule out” the possibility.

FX Clauses
A less extreme, and more plausible, option would be for the Trump administration to include currency clauses in any new trade deals, like it did with the updated U.S.-South Korea trade agreement in March.

There are plenty of caveats, of course, and the odds of any kind of U.S. intervention are still low. At the G-20 summit, Treasury Secretary Steven Mnuchin assured fellow finance ministers the U.S. wouldn’t meddle in foreign-exchange markets. And while White House trade adviser Peter Navarro has broached the subject of a global accord on currencies in the past, the chances of a multilateral agreement on the dollar are remote. Plus, there’s always the threat of retaliation by other nations if the U.S. goes it alone.

Nevertheless, many who recall the events in the early 1980s that culminated in the Plaza Accord see certain parallels to what’s happening today. Then, as now, the dollar’s strength on the back of rising interest rates was at the center of trade tensions between the U.S. and other major economies. Protectionism was on the rise, as were fears of foreign imports costing American jobs. Then, the bogeyman was Japan. Today, it’s China.

Precipitous Drop
And as the trade war with China intensifies, some are worried the yuan’s precipitous drop may prompt the U.S. to open a new front in the FX markets. The yuan has tumbled 9 percent since April, when trade friction with China started to intensify. The magnitude of the decline, by some measures the fastest since the 1994 devaluation, boosted speculation the People’s Bank of China is deliberately weakening the yuan to offset the tariff impact.

There are reasons to think that China isn’t trying to weaponize the yuan. A senior official at the PBOC said this week that China won’t use competitive currency devaluation as a tool to cope with trade tensions. Earlier this month, the central bank effectively made it more expensive to short the currency as it sought yuan stability.

That hasn’t stopped Trump from criticizing the country for taking advantage of the U.S. by keeping its exchange rate artificially low. (It’s worth noting that the Treasury Department, which conducts a twice-yearly review of international foreign-exchange policies, declined in April to formally name China a currency manipulator based on its own set of criteria.)