The U.S. dollar has long occupied a position of unrivaled influence on the global stage; dominant in global trade, central to international finance, and the world’s primary reserve currency.
Yet a new chapter may now be unfolding, one in which the dollar could become an unintended casualty, and Americans, the worse off.
Since Trump’s return to the White House and his renewed push for reciprocal tariffs, America’s aggressive trade stance in the last 90 days may have inadvertently begun to accelerate what was once a gradual effort by many nations of the world – American friends and foes alike – to curb some of their reliance on the dollar.
The Dollar Underpins the World—But for How Long?
Since World War II, the dollar has enjoyed an outsized role in the world economy; accounting for nearly 60% of global exchange reserves and over 80% of global trade finance. But that dominance has never really been unconditional. It had always rested on trust – trust in the stability of American institutions, the predictability of American policies, and the impartiality of American economic tools.
The reciprocal tariffs announced in April, meant to mirror penalties on countries based on Trump’s perception of unfair trade practices, therefore mark a significant departure from that ‘American Predictability’. While Trump’s goal is to correct perceived trade imbalances, the broader effect has been to inject uncertainty and strain eons–old alliances. The dollar, once a symbol of economic stability, is now increasingly viewed as a lever of coercion – unwelcomed to many, and alarming to many more.
De-dollarization: From Distant Prospect to Present Reality
Until recently, efforts to reduce reliance on the dollar were limited and largely symbolic. But they’ve gained urgency amid rising U.S. trade and financial aggression. China and Russia are now renewing the charge; shifting settlements to their own currencies and championing systems like the Cross–Border Interbank Payment System (CIPS), a going alternative to SWIFT.
Even traditional U.S. allies are now reevaluating their exposure. In March, the Association of Southeast Asian Nations (ASEAN), comprising Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam, agreed to explore local currency settlement frameworks.
The UAE and India have initiated oil trades in Rupees. And even France, recently purchased LNG from China in Yuan. These moves, are far from mere political statements, but could also be seen as strategic hedges against the risks posed by abrupt shifts in U.S. foreign policy, and the unpredictability attendant of a second Trump presidency.
Reciprocal Tariffs: A Catalyst for Currency Diversification
Trump-era tariffs are now resurrecting a mercantilist view of global trade; one in which every gain is someone else’s loss. But by weaponizing tariffs and potentially pressuring the Federal Reserve to cut rates in response to the economic fallout, Trump risks eroding the very institutions that underpinned the dollar’s power to begin with.
His constantly shifting stance on tariffs and the specter of a prolonged trade war, particularly with China, have injected severe volatilities into financial markets to the extent that many now fear a looming recession, mounting growing pressure on the Fed to lower interest rates.
This fear has prompted global investors to dump U.S. Treasuries, driving yields to their highest levels in 25 years, and American Stock Markets to Pandemic level. An un–Ideal situation, if the goal is to preserve the dollar as the cornerstone of global trade.
Investor Sentiment and Market Signals
Traditionally, global instability boost demand for the dollar. But recent developments suggests that paradigm may be changing. Since reciprocal tariffs were reintroduced, the dollar has consequently weakened while gold prices have surged – a reversal of past trends.
This decoupling thus signals something deeper: a potential erosion of investor confidence in the dollar’s role as the ultimate safe haven.
Friends Turning Cautious, Competitors Becoming Bold
Perhaps the most damaging aspect of Trump’s tariffs is their indiscriminate application. Traditional allies such as Japan, South Korea, the EU, and even Canada are facing the same penalties as adversaries. This erosion of trust is prompting even staunch allies to explore ways to hedge their exposure to U.S. assets and the dollar.
Meanwhile, geopolitical rivals are capitalizing on the moment. China is now offering Yuan-denominated credit lines to African and Middle Eastern countries. Russia has expanded ruble–based trade across Eurasia. And, Brazil and Saudi Arabia are amongst many exploring non–dollar trade arrangements. Twelve months ago, these ideas might have been speculative, but today, they are becoming going policy for many nations.
While this may not yet be a wholesale abandonment of the dollar, it clearly signals the beginning of a more fragmented monetary order, where no single currency dominates, particularly If the U.S. continues down its current foreign policy trajectory, the Dollar may soon find itself with diminished leverage in the very global systems it once built and led.
The Hidden Costs of Currency Power
The dollar’s dominance has always provided the U.S. with considerable advantages: the ability to borrow cheaply, enforce sanctions effectively, and project influence without military force. But it seems Trump has forgotten; with great power comes great responsibility. That responsibility includes maintaining stability and predictability in the American financial system.
When these responsibilities are neglected, or worse – politicized – confidence begins to wane. Recent White House chatter about converting U.S. Treasury holdings into long-dated, low-yield bonds has only added to rising global unease. While such proposals are unlikely to materialize, the mere fact that they’re being discussed is enough to unsettle central banks and global investors.
No Heir Apparent Needed to Weaken the Dollar
It is therefore important to note that de-dollarization doesn’t require a one-for-one replacement. The yuan doesn’t need to “replace” the dollar for a profound shift to occur. What is now unfolding is more nuanced: a diffusion of monetary power across several currencies, each being used for trade, reserves, and investment, differently. A multipolar financial world, in which the dollar is merely first among equals, and no more.
All Choices Have Consequences
The dollar’s status was not gifted; it was earned, built on decades of stable leadership and reliable, formulaic policies. If the U.S. continues to wield its punitively rather than cooperatively policies, and if uncertainty becomes the hallmark of its global engagement, it may find the dollar slowly but certainly losing its place at the center of international finance.
Reciprocal tariffs were meant to restore America’s trade competitiveness. But they may fast–tracking of a more disruptive outcome: the fragmentation of the global financial system and the uneven, but steady, decline of the dollar’s supremacy within the next decade.
Brain Essien is a financial analyst and business process consultant, with expertise in investment banking, market research, business plan formulation and pitch deck design, crowd/private equity, and seed fund brokerage. mcbrainandcompany@gmail.com.
