End of Dollar Dominance?

The Dollar’s Demise? Trump’s “Economic War” and the Fragile Future of Global Currency

“Is the world losing faith in the almighty US dollar?” The headline screamed from the pages of the Financial Times this week, and the answer, according to their analysis, is a resounding yes. What was once a quiet murmur in the financial press has now become a growing chorus of concern, fueled by the turbulent economic policies of the Trump era.

The traditional playbook of financial markets dictated that during times of uncertainty, investors would flock to the safe haven of the US dollar and US Treasury bonds, driving up its value.¹ But the script has been flipped. Ever since what some are calling Trump’s “liberation day,” marked by the unveiling of his “reciprocal tariffs,” we’ve witnessed an unsettling trend: investors are moving out of US government debt, and the dollar’s value is slipping. Meanwhile, the price of gold, that timeless store of value, continues its ascent to record highs.²

A temporary pause on these hefty tariffs (ranging from 30 to 50 percent on goods from numerous countries) has offered a brief respite, a moment for tense negotiations.³ But the underlying question looms large: what happens when this pause expires? Trump’s warning that “nobody gets off the hook” suggests a return to the economic battlefield is likely.⁴

America the Unstable?

Adding fuel to the fire, a recent commentary by the FT’s Rana Foroughi paints a stark picture. Her key takeaway from the tariff chaos? That America, under Trump, has morphed into an “emerging market.”

Think about it: in previous periods of political and economic turmoil, the dollar and US equities rose due to their perceived safety. But that’s no longer the case. Foroughi argues that Trump has effectively ended America’s “exorbitant privilege” – the unique position that allowed the US to weather economic storms relatively unscathed. She even goes so far as to suggest that the once unthinkable – an emerging market-style debt crisis in the US – is now a real possibility.

Trump’s policies – the very tariffs that are disrupting global trade and the proposed tax cuts that will further inflate the already staggering $36 trillion national debt – are only exacerbating this precarious situation. This isn’t just about a trade spat; it’s about the fundamental stability of the world’s reserve currency.

The “De-Dollarization” Debate:

George Saravelos of Deutsche Bank echoes these growing concerns within leading financial circles.⁵ Despite the tariff pause, he argues that “the damage to the USD has been done.” The market, he suggests, is actively reassessing the dollar’s structural appeal as the world’s reserve currency and is undergoing a process of “de-dollarization. “However, this crisis isn’t solely a Trumpian creation. As the article astutely points out, it’s the culmination of a long-term decline in the US’s relative economic position. Trump, with his wrecking ball approach, is dismantling the post-World War II economic, trade, and financial order, seemingly oblivious to the reasons why it was established in the first place – largely due to US “national security” concerns aimed at preventing a repeat of the disastrous interwar period.⁷

The Ghost of Bretton Woods:

The article takes a fascinating historical detour, reminding us of the foundations of the post-war order: the dollar backed by gold (the Bretton Woods Agreement), the reduction of tariffs, and the promotion of free trade.⁸ These pillars, built on the strength of the US economy, were intended to prevent the trade and currency wars of the 1930s.

But as history often reminds us, even the most robust systems eventually face their limits. In 1971, President Nixon unilaterally severed the dollar’s link to gold, effectively ending the Bretton Woods system.⁹ This marked a significant shift, ushering in an era of floating currencies and the deregulation of capital flows. The dollar remained central, but it was now a fiat currency, its value backed solely by the American state.¹⁰

The Rise of Financialization and Globalized Production:

This new era unleashed finance, leading to the rise of “financialization” – profit accumulation through speculative and often parasitic methods. Regulations put in place after the Great Depression were dismantled, culminating in the repeal of the Glass-Steagall Act in 1999.¹¹

Simultaneously, the collapse of the Soviet Union and the opening up of China created new global profit opportunities. The US, initially viewing China as a source of cheap labor within a US-dominated order, inadvertently paved the way for China’s own economic ascent.

The Existential Challenge:

China’s move up the value chain, from cheap manufacturing to advanced technology, poses a direct challenge to US hegemony.¹² The Obama administration recognized this with its “pivot to Asia,” but efforts to revitalize the global trading system under US leadership ultimately failed. The US trade and payments deficits continued to grow, and the national debt spiraled upwards, sustained only by the dollar’s reserve currency status.

As Fareed Zakaria pointed out back in 2023, America’s unchecked spending, fueled by the dollar’s unique position, is a dangerous game. If that status wanes, the US could face an unprecedented reckoning.

No Viable Alternative? Think Again.

Despite the growing anxieties, some argue that the dollar’s dominance is safe simply because there’s no immediate replacement. Mark Sobel, a former Treasury official, is quoted in the FT as saying he doubts Europe can get its act together and that China isn’t opening its capital account anytime soon.¹³ “So what’s the alternative? There just isn’t one,” he concludes.

While Sobel’s assessment of the immediate limitations of Europe and China might hold some truth, the article offers a crucial counterpoint: the absence of a single, ready-made alternative doesn’t mean the dollar’s reign will continue unchallenged.

Instead, the current trajectory points towards an increasingly fractured global economy, with the emergence of rival trading, financial, and currency blocs – a “conflict of each against all,” reminiscent of the disastrous interwar period.

The Specter of a New World War?

The article takes a chilling turn, suggesting that Trump’s seemingly irrational policies have their own twisted logic. Every move, every tariff, is justified under the banner of “national security” – the idea that the current economic order has weakened the US military capacity.

The crisis of the dollar, therefore, isn’t just an economic issue; it’s a sign that the conditions for a new world war are rapidly developing, with the US viewing China as the primary threat to its global dominance.¹⁴ The imposition of near-economic blockades through massive tariffs and tech export restrictions raises the terrifying question: how long before economic conflict spills over into outright military confrontation? History, the article grimly reminds us, suggests sooner rather than later.

A Call for Revolution:

The ruling classes, both in the US and internationally, appear to be bereft of solutions, their responses limited to economic warfare, increased military spending, and the erosion of democratic rights.

The article concludes with a powerful call to action: the international working class is the only force capable of resolving this historic crisis. But to do so, it must embrace the perspective of socialist revolution.

The Dollar’s Dilemma: A Turning Point?

This isn’t just another economic downturn. The challenges facing the dollar are deeply intertwined with shifting global power dynamics, the legacy of past economic decisions, and the disruptive policies of the present. Whether the dollar faces a slow decline or triggers a more dramatic fracturing of the global economic order remains to be seen. But one thing is clear: the once unquestioned dominance of the almighty dollar is now firmly under fire, and the world is bracing for the potential fallout.#GlobalEconomy #FinancialCrisis #DeDollarization #TradeWars #DollarCrisis #CurrencyCrisis #USD #AmericaTheUnstable