Pundits Are Increasingly Worried That Trump’s Tariff Tiff Will Upend Decades of American Exceptionalism and Dollar Dominance

The most dangerous words in finance? “This time is different.” That’s why many proponents abide by the phrase’s inverse, “Nothing really happens.” Last week, though, both might’ve been true — thanks to Trump’s tariffs. We could be entering an era that feels both very different and all too familiar at the same time.

Less than two weeks ago, President Trump stood in the Rose Garden at the White House and announced the most aggressive tariffs that the US had ever imposed on a number of key trading partners, including many allies. It took six days for flighty business leaders to convince the President to pale back his protectionist policies — which had spurred massive declines in US stocks, soaring Treasury yields, and the ire of global partners. Some are now worried that it was five days too many.

Is the damage done? Trump pitched Americans on a more self-sufficient, industrialized America — one that doesn’t need to use its excessive wealth to buy affordable goods from other nations. And what the rest of the world heard is: the party’s over. With global trade uncertainty now at all-time highs, analysts and pundits are increasingly worried that Trump’s six-day fiasco dealt permanent damage to decades of American exceptionalism and Dollar dominance. Billionaire Ray Dalio has tuned into this uncertainty, warning that there is a “once-in-a-lifetime” breakdown occurring. One thing is clear — the world now sees America retreating from its position atop the global order.

• New policies have radically reshaped global perception of the US, with popular opinion surveys showing the country’s reputation has “fallen off a cliff.”
• That’s prompting one-time allies to reconsider their dependence on the US — in defense, trade, and asset terms — an effort that could spur global realignment.

The End of Pax Americana?

Faced with few other options, Europe looks to be aligning itself with trade partners in Asia, with Spain’s PM undertaking economic visits last week — and China’s President Xi expected to host EU leaders this summer. And as other countries, including one-time allies, choose to collaborate with each other and exclude the US, the odds of America’s protectionist retreat becoming existential to its place atop the global order becomes more real.

• ECB policymaker and Bank of Spain Governor José Luis Escrivá warns that the US dollar could be losing its status as a reserve currency and haven — a product of the new policies, as well as mounting worries about Fed independence.
• These concerns have been measured by institutions and foreign countries, which sold off US government bonds as part of a crisis of confidence, turning to different ‘safe haven’ assets like German bunds, the Swiss franc, and the Japanese yen.

Who emerges atop the global order? At this point, that’s still ultimately up to the US, the world’s wealthiest and most powerful country. However, if partisan policymakers continue to bungle America’s authority and stability on the global stage, it could end up second chair in a new world order. The likely successor would be the Euro, the currency of the EU, which is larger and less affluent than the US. However, there’s no ruling out the possibility of an EU-style trade bloc in Central and South America, which would only further complicate the picture for the US. Worst-case scenario, the fears of cultural conservatives could be realized if BRICS+ countries seize on America’s retreat to launch their own commodity-backed currency — a possibility that was thought to be relatively impossible just a year ago. Only time will tell where the US decides to stand — and what that will mean, not just for its 341M citizens but the 8.1B+ world citizens.