How Trump’s Trade Wars Threaten the US Dollar’s Global Crown

Since the Bretton Woods Agreement of 1945, the American dollar has reigned supreme in global finance. Like a trusted old friend, it has been welcomed across trading floors from Tokyo to London, from Sydney to São Paulo. Yet this remarkable privilege, often taken for granted in Washington’s corridors of power, now faces an existential challenge that few Americans properly comprehend.

When foreign manufacturers ship their trainers, televisions and trinkets to American shores, they collect dollar payments that subsequently flow through the veins of the global economy. These greenbacks grease the wheels of international commerce, particularly in vital commodities markets where oil, wheat and metals trade exclusively in Uncle Sam’s currency. The arrangement has served America handsomely, with foreigners regularly returning these dollars to purchase US Treasury bonds, effectively financing American government spending at bargain-basement interest rates.

This seemingly magical arrangement comes with a seldom-discussed requirement: America must run persistent trade deficits. Far from being an economic weakness, as populist politicians frequently claim, these deficits actually supply the world with the dollars it needs to conduct international trade. It’s a peculiar financial alchemy that transforms America’s appetite for imports into global financial influence.

The dollar’s supremacy isn’t merely about national pride, it’s the foundation of America’s financial advantage. When foreigners willingly hold dollars and dollar-denominated assets, they’re essentially providing interest-free loans to the American economy.

Yet this delicate system faces mounting pressure. The recent American embrace of punitive tariffs against major trading partners resembles nothing so much as a game of financial Russian roulette. As global commerce redirects away from American markets, the circulation of dollars naturally diminishes. Foreign exporters, holding fewer greenbacks, subsequently purchase fewer Treasury bonds.

The consequences quickly cascade. To attract sufficient buyers for its debt, the US Treasury must offer more generous returns, pushing interest rates upward across the American economy. Mortgages grow more expensive, corporate borrowing costs soar, and consumers face steeper credit card bills. Meanwhile, the American government’s interest payments balloon, exacerbating already troublesome budget deficits.

What many fail to grasp is that the dollar’s global status isn’t guaranteed by divine right, it depends entirely on the confidence of individuals and institutions worldwide, confidence that appears increasingly fragile.

Historical precedent offers little comfort. Reserve currency status, once lost, proves devilishly difficult to reclaim. The British pound’s agonising descent from global prominence after World War II provides a cautionary tale that American policymakers would be wise to heed.

Perhaps most concerning, America’s financial system operates with remarkably slim margins of safety. A Swiss watch requires a screwdriver not a hammer. The federal government’s debt has swollen to unprecedented levels, while interest payments consume an ever-larger portion of tax revenues. In this precarious context, preserving the dollar’s international standing isn’t merely a matter of prestige, it’s essential for America’s financial survival.

As spring sunshine bathes Washington’s cherry blossoms, America’s financial future hangs in the balance. Nobody but Trump and his team know if this is just a lull in the storm, or the strong arm tactics of Asia-Pacific countries and Canada selling US Treasury Bonds has given them the shock they require to back off this tough and misguided tariff policy? Do they fully appreciate the gravity of what’s at stake. For a nation accustomed to dollar dominance, the adjustment to a multipolar currency world or a pretender to the currency crown would prove jarring indeed.

See also, USA Rogue State and The Great Crypto For Gold Heist.

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