The Dollar | 1787

America is not just a country; America is a brand. And not just any brand. The United States of America is still the mightiest, most trusted, most admired brand in the entire world.

A huge part of our brand is our economic dominance. For decades, regardless of who was in the White House or in the seats of Congress, countries around the world have had incomparable trust in the economic integrity of the United States of America. This has made America a magnet for long-term investment; led to the dollar being the global reserve currency; and inspired continued faith in U.S. Treasurys.

The recipe for the extraordinary economic position we hold in the world is simple: fidelity to smart, rigorous economic norms and structured international economic order; nonpolitical institutional integrity; and commitment to the rule of law.

Although our stellar credibility and the trust that other countries, investors, and citizens of the world have in our economic competence have taken decades to build, they are both rapidly collapsing under the Trump/Vance administration.

The irresponsibility and unseriousness of these people’s actions is nothing short of breathtaking. In addition to the catastrophic mess they have made of our global alliances, they have done everything from relentlessly criticize and threaten the independence of the U.S. Federal Reserve – to the point that the U.S. Department of Justice opened a criminal investigation into its chairman – to brazenly undermine the credibility of independent, nonpolitical agencies like the Congressional Budget Office and the U.S. Bureau of Labor Statistics – substantially damaging the credibility of our official economic data and our accountability procedures.

These are not things that dependable, established governments do.
These are things that emerging, corrupt governments do.

The Economist’s adjectives for the Trump/Vance administration capture it perfectly: “shambolic, incoherent” and “a mockery of policymaking.” They were speaking specifically about tariffs but could have easily been talking about almost every decision they make.

Already, global confidence in the American economy has been slowly eroding thanks to our rising national debt, increasing deficits, and worsening domestic political turmoil. As a result, many countries have taken actions to “de-risk” from America – including diversifying their investments and supply chains, reducing dependency on American technology, and strengthening their partnerships with other countries.

This comes at a time when China is pushing to globalize its own currency (the yuan) particularly for things like bank payments. It seems their main goal is to offer an alternative to the Society for Worldwide Interbank Financial Telecommunications (SWIFT) system, a U.S.-dollar dominant network that facilitates secure money and securities transfers for over 11,500 financial institutions in 220 countries and territories.

While the U.S. dollar makes up over 50 percent of payments using the SWIFT network and 80 percent of trade finance (compared with 3-4 percent and 8 percent, respectively, for the yuan) countries are increasingly using the Cross-border Interbank Payment System (CIPS), China’s settlement system. In fact, because sanctions have cut Russia off from the Western financial system, yuan-based financial channels now handle the overwhelming majority of Russia-China trade payments. CIPS, which launched in 2015, now links over 5,000 banks across 190 countries and reported RMB (renminbi, the official name of China’s currency) 100.9 trillion of payments in the first half of 2026 alone.

China is also encouraging global firms to issue bonds in the yuan, creating a market of investible securities for the currency, and the yuan is already the settlement currency for around half of China’s cross-border deals, up from practically zero fifteen years ago.

Make no mistake, although the yuan is nowhere close to replacing the dollar, almost everything mentioned in the last three paragraphs points toward a concerning long-term direction for the United States. The danger is not that the yuan will suddenly dethrone the dollar. It’s that these developments can gradually erode the extraordinary advantages the United States enjoys from dollar dominance: cheaper financing, enormous financial leverage, and a degree of economic power no other country possesses.

But the Trump/Vance administration doesn’t see it that way. President Trump, for one, thinks it was “great” that the dollar fell to a four-year low in late January 2026 because, in his mind, a weaker dollar means the world isn’t “looting,” “pillaging,” and “plundering” the United States anymore – proving yet again that he has little understanding of how global trade actually works.

One of his favorite rally themes – and it really gets the MAGA crowd going – is that the entire world is out to get us, screwing us at every opportunity. But that’s just not true. Guys, honestly, that’s just not happening.

Trade deficit doesn’t automatically mean we’re getting screwed. Trade deficits are not scorecards that keep track of who is winning and who is losing, or if trade deals are “good” or “bad.” Unlike what the Trump/Vance administration seems to believe about everything, trade is not a zero-sum game.

It’s very important to keep in mind that trade deficits are different for the United States than other countries because our currency is the dominant global reserve currency – meaning the U.S. dollar is used in many transactions that the United States has nothing to do with. Many countries trade with one another – and borrow and lend – using the U.S. dollar. This increases the demand for our dollar on foreign exchange markets which, in turn, makes our dollar stronger. A stronger U.S. dollar, in turn, makes our exports more expensive and imports less expensive – which ultimately leads to an overall trade deficit.

In fact, because of our currency’s position in the world, the U.S. running a trade surplus would create serious strain on the entire global market. That sounds dramatic but remember that, in the past four decades, the United States has had current-account surpluses in only three years –1980, 1981 and 1991 – and each of those years was tied to a recession.

Far from being a burden, we as a country want this role. It gives us unparalleled power in global finance, not to mention lower interest rates which leads to cheaper financing.

So, guys in the Trump/Vance administration, the lesson here is that, if the U.S. economy is growing faster than other economies around the world, our trade deficit will probably increase – because strong domestic growth increases America’s demand for imports while, at the same time, weaker foreign growth decreases the world’s demand for America’s exports.

But here’s the bad news: America enjoys these extraordinary privileges only as long as the rest of the world continues to trust the United States, its institutions, its financial markets, and ultimately its ability and willingness to honor its debts. If the world starts to question the United States as the leading global economic force – or continues to lose confidence in our direction – there could be a major sell-off of U.S. assets, particularly Treasury bonds and stocks.

This could likely trigger a debt crisis and worldwide panic. Next comes major stock market volatility and a run on the dollar. Interest rates spike, exponentially increasing the pain of our massive indebtedness and make it more expensive, if not impossible, to raise capital, invest in innovation, and create jobs.

It will also be much harder for the United States to borrow money to respond to short-term financial emergencies such as wars, recessions, or economic calamities like the 2007-2009 Financial Crisis (when we desperately needed our public balance sheets to offset the enormous de-leveraging of private ones) or things like the economic fallout caused by the Covid pandemic (when American families were in dire straits).

Inflation will come in even hotter which, as we already well know, causes serious pain for most American households. And this will do nothing but get more painful. Longer-term, high inflation strikes at the very heart of the financial security of the Middle Class, affecting savings accounts, pensions, and home ownership even more.

This will make us more beholden to foreign investors – including foreign private investors as well as foreign governments – who already hold roughly 9 trillion of Treasury securities. It’s important to remember that our vulnerability isn’t that China can suddenly call in our loans. It’s that the United States depends on a vast, continuous pool of domestic and foreign demand for Treasury securities to finance increasingly large deficits at manageable interest rates.

This underscores a fundamental tension in the Trump/Vance administration’s strategy: They want smaller trade deficits and a weaker dollar while simultaneously wanting the dollar to remain the world’s dominant reserve currency, foreigners to continue pouring enormous amounts of capital into the United States, and American borrowing costs to remain low. Those objectives don’t coexist. The same global demand for dollars and dollar-denominated assets that gives the United States extraordinary financial power also tends to strengthen the dollar and helps sustain the capital inflows associated with America’s external deficits.

For all the reasons given above, the possibility of the world questioning the United States as the leading global economic force and/or losing confidence in our direction is something we must watch very, very closely because there are already serious warning signs.

In August 2026, The Wall Street Journal reported that two new studies – one from MIT and the other from Stanford – suggest investors don’t seem as willing to accept low bond yields because of the U.S. Treasurys’ safety: “Treasurys, long the world’s preferred ‘safe’ asset, are looking less safe. Relative to other securities, their yields are no longer quite so low, and in moments of stress, they don’t behave like a haven.”

Spoiler Alert: That's not good.