At the inauguration of the Trump administration in January last year, we said the world could see a currency war based on its economic agenda. This war seems to have finally broken out as the dollar unjustifiably took a nosedive by 15-17 per cent against the euro and pound in less than two months.

It is indeed a rare case as evidenced by postponing the passing of the US budget by two days and the US Congress having to approve the disbursement of temporary credits. The administration’s move is meant to achieve the strategic goals of increasing exports and resettling some US industries that had moved overseas over the past two decades. This means reducing the trade deficit and creating more job opportunities where unemployment rates had fallen drastically.

This approach will not be limited to the US. The EU, China, Britain and Japan will not stand idly by and see US-made goods sweeping global markets, including their own, due to the weak dollar. In turn, they will take action, especially China and the EU.

This will push Washington to take countermeasures, as the US Treasury Secretary noted last week that the weak dollar is in the interest of America, which means entering a currency war that will cause serious damage to the global economy.

What matters for us is the implications of this war on Gulf countries and how to deal with the fallout. It is worth mentioning that besides the rise in oil prices to $70 per barrel — because of the Opec output cut agreement that included countries from within and outside the organisation — the sharp drop in dollar’s exchange rate also contributed to the rise in prices.

Regional countries should restructure their foreign trade as that would definitely contribute to stabilising the market and reduce the next wave of inflation. Domestic currencies will accordingly fall as the dollar depreciates, and this is what has practically happened in the last few weeks.

Thirdly, prices of goods imported from Europe, China, Japan and possibly India will experience hikes, even as prices of goods imported from the US will remain at previous levels. Bear in mind US imports of consumer goods do not constitute a large proportion of these commodities at the present.

A fourth point, vacationers will have to prepare for a different summer this year. Travel to Western Europe and Japan will get expensive, which will encourage vacationers to look to other destinations, such as the US, East Asian countries and some Arab countries, such as Egypt in the event of it relative stability.

There will be other consequences if the world enters a currency war, including disadvantaging global growth and the poorer countries, which already have had their low living standards affected.

In the light of the above, the potential for currency war is strong. President Trump acts as a pragmatic businessman and not as a statesman; he does not care about the political ramifications of his decisions, but rather the economic gains. This is best evidenced by his ignorance to the repercussions of his decision to move the US embassy to Jerusalem and ignoring the strong protests that took place across almost all other countries.

Whoever wants to deal with his administration should deal based on this basis. In other words, dealing with Trump as a pragmatic businessman, and which might mean more chaotic global economic relations.

Dr Mohammad Al Asoomi is a UAE economic expert and specialist in economic and social development in the UAE and the GCC countries.