Trump’s tariffs turbocharge de-dollarization (Uncut) 05-04-2025

Trump’s tariffs turbocharge de-dollarization: World sells US dollar assets, seeking alternatives

Donald Trump has made it clear that one of his top goals is to maintain the global dominance of the U.S. dollar. When he campaigned to be U.S. president in 2024, he promised that he would punish any country around the world that sought alternatives to the U.S. dollar by hitting them with 100 percent tariffs. Many countries are leaving the dollar.

They’re not going to leave the dollar with me. Maybe I’ll say you leave the dollar, you’re not doing business with the United States because we’re going to put 100 percent tariff on your goods. Sir, we would like very much to get back to the dollar immediately.

Thank you very much. It’s so easy. I don’t know.

Donald Trump also warned that if the U.S. dollar lost its status as the global reserve currency, it would be like losing a major war. I’m very much a traditionalist. I like staying with the dollar.

You know that from when I was there. It’s making me make the dollar the choice. I hate when countries go off the dollar.

I would not allow countries to go off the dollar because when we lose that standard, that will be like losing a revolutionary war. That will be that will be a hit to our country, just like losing a war. And we can’t let that happen.

And too many countries now are fighting to get off the dollar. Now, this is all quite ironic because since Trump has returned for his second term as U.S. president, his tariffs and trade war have actually accelerated the decline of the U.S. dollar and the global move toward de-dollarization, which refers to the tendency of other countries to seek alternatives to the U.S. dollar and use other currencies in international trade and to hold other assets in their foreign exchange reserves. Western media outlets have warned that Trump’s tariffs have put the dollar’s safe haven status in jeopardy.

Until recently, de-dollarization was largely associated with global South countries, especially those that are members of BRICS that was founded by Brazil, Russia, India, China and South Africa. BRICS has been creating new institutions to try to encourage de-dollarization, seeking alternatives to the U.S. dollar in an attempt to reform the international financial system, which is dominated by the U.S. and its currency. And we have seen more and more signs of this.

The Financial Times published a long report on how China is quietly diversifying away from U.S. government debt, U.S. Treasury securities and seeking alternatives. I’m going to talk about that a bit later in this analysis today. But what’s incredible about this accelerated move toward de-dollarization is that it’s not just countries doing this for geopolitical reasons.

It’s also financial institutions. And the Financial Times published another article about Deutsche Bank, the major German bank. The global head of foreign exchange research at Deutsche Bank said this, quote, We are witnessing a simultaneous collapse in the price of all U.S. assets, including equities, the dollar versus alternative reserve foreign exchange and the bond market.

We are entering uncharted territory in the global financial system, end quote. This analyst at a major German bank then continued, saying that the market is rapidly de-dollarizing in a typical crisis environment. The market would be hoarding dollar assets, but instead the market has lost faith in U.S. assets.

It is actively selling down U.S. assets. And as this Deutsche Bank researcher said, quote, U.S. administration policy, that is Trump administration policy, is encouraging a trend toward de-dollarization to safeguard international investors from a weaponization of dollar liquidity, end quote. So this is the ultimate irony.

Donald Trump claimed that he would save the dominance of the U.S. dollar by threatening countries all around the world. But in reality, his tariff threats have only accelerated the move toward de-dollarization, not just for geopolitical reasons, but for financial reasons. And what’s incredible is we’re even seeing longtime U.S. allies like Japan float the possibility of selling the huge sums of U.S. government debt that they hold as a bargaining chip because the Trump administration is trying to impose these aggressive demands on its so-called allies, and they’re pushing back and saying they’re not going to tolerate it.

And what all of this is showing is how rapidly Donald Trump’s trade war blew back and blew up in his face. Trump first declared tariffs on countries all around the world at the beginning of April on so-called Liberation Day. That was on the 2nd of April.

And then a week later, Trump temporarily paused the tariffs he threatened on countries around the world. Instead, imposing a blanket 10 percent tariff on all countries. But he singled out China and rapidly raised tariffs on China to 145 percent, which essentially is a kind of nuclear trade war.

Trump already started a trade war on China during his first term as president back in 2018. But now in his second term, he accelerated that to a full-on nuclear trade war. And then Trump’s treasury secretary, the billionaire hedge fund manager Scott Besant, said the quiet part loud.

And he admitted that what the U.S. is trying to do is to contain China, to weaken China. Besant revealed that Trump wanted to use tariffs to force other countries to join the U.S. And as Besant said, quote, we can approach China as a group, end quote. So Washington was trying to use its tariffs to force Japan, South Korea, Vietnam and India to all work together to isolate China in what Besant described as a, quote, grand encirclement strategy.

However, that strategy has not worked as the Trump administration thought it would. In fact, it also blew back. And immediately after Trump announced all these new tariffs, including sky high tariffs on Vietnam, which is one of the major trading partners of the U.S., what happened? China’s President Xi Jinping took a trip to Vietnam and had a very friendly meeting with Vietnamese leadership.

And they signed more than 40 bilateral agreements deepening their partnership. So the U.S. attempt to try to recruit Vietnam against China did not work. In fact, Trump’s tariffs have been pushing China, South Korea and Japan to cooperate more closely, despite the fact that these are countries that have very significant differences.

I mean, Japan colonized China and South Korea. There’s still a lot of anger in the region toward Japan and the horrific imperial crimes it committed in the 1930s and 40s. Yet despite those differences, just a few days before Trump announced these tariffs on so-called Liberation Day in April, what happened? For the first time in five years, South Korea, China and Japan held an economic meeting to discuss ways in which they can cooperate to soften the impact of Trump’s trade war.

And even in Japan, which is one of the closest U.S. allies on Earth, there is more and more outrage over Trump’s tariff threats. Japanese lawmakers are publicly condemning Trump, comparing him to a, quote, delinquent kid, end quote, over his tariff threats. And Japan has been holding trade negotiations with the U.S. and the talks are not going nearly as well as the Trump administration hoped.

Japan has been pushing back quite a bit against the threat of U.S. tariffs on Japanese autos, that’s cars, and also steel. And one of the most shocking developments in these trade talks is that Japan’s finance minister floated the idea that Japan could sell off the huge sums of U.S. Treasury securities, that is U.S. government debt, that it has as part of a negotiating tactic, which would be a quite extreme measure. But it shows that Japan is pushing back.

And this idea that the Trump administration had, that they can simply bully all these countries and push them around, even longtime U.S. allies like Japan, which has been militarily occupied by the United States for 80 years, even Japan is pushing back. Now, one of the main reasons that Trump took a step back from his tariff threats in April is because of backlash in the bond market. So Trump announced these massive tariffs on the 2nd of April.

And in the week following that, there was a rapid increase in the yield on the U.S. 10-year Treasury note. This is one of the most important financial assets, not only in the U.S. economy, but in the global economy, because other interest rates are often set based on the yield on the U.S. 10-year note. So when the yield shot up, this was a sign that investors were selling their holdings of U.S. Treasury securities and seeking other assets, and that U.S. government debt was no longer being seen as the safest asset.

This really terrified the Trump administration and forced Trump to take a step back. So if a major holder of U.S. Treasury securities started to sell off that debt, this could cause a crisis in the U.S. bond market. But Trump is still insisting on imposing more and more tariffs.

He says this is only a temporary pause, and he’s very serious about these tariff threats. So now other countries, including the major U.S. ally Japan, are saying, fine, if you want to do this to us, we can respond by causing a crisis in your bond market. Japan is the single largest foreign holder of U.S. Treasury securities.

That’s U.S. government debt. Japan’s central bank holds more than $1.1 trillion of U.S. Treasury securities in its reserves. And you know what the second biggest foreign holder of U.S. government debt is? China, the Chinese mainland, with over $700 billion of U.S. Treasury securities in its reserves.

And in response to Trump’s nuclear trade war on China, the Wall Street Journal warned that Beijing has some cards that it can also play. As the Wall Street Journal put it, China has two major financial weapons, its holdings of U.S. Treasuries and its currency, the yuan. As this leading U.S. newspaper put it, quote, the escalating trade conflict between the U.S. and China has reignited fears that Beijing could use financial markets to hit back at Washington.

There have long been fears that China could dump the U.S. Treasuries that make up a large chunk of its foreign exchange reserves, end quote. Now China has been slowly but gradually de-dollarizing its reserves over the past decade. China’s official holdings of U.S. Treasury securities peaked in 2014 and have fallen since then.

And if you look at China’s investments in U.S. assets as a percentage of its GDP, it has been steadily declining since the 2008-2009 financial crisis. And the Financial Times published a long report detailing how Trump’s tariffs against China and trade war have only accelerated the move toward de-dollarization in Beijing. This report quoted influential Chinese scholars who wrote, quote, the safety of U.S. Treasury securities is no longer a given.

That era is behind us, and we should be concerned about that change from the safeguarding perspective of our Treasury holdings, end quote. And another major reason cited by Chinese scholars was the fact that in 2022, the United States and also the European Union froze and seized around $300 billion worth of dollar and euro-denominated assets that were held by Russia’s central bank. This was in response to the proxy war in Ukraine between NATO, led by the U.S. on one side, and Russia on the other.

But Russia was not the only country whose reserves were frozen and effectively stolen by the U.S. and the broader West. There have been several other examples of countries in the global South who have been targeted by what’s essentially international piracy by the West, including Iran, North Korea, Libya, Syria, Venezuela, Afghanistan. Now, those countries are relatively small, whereas Russia is a huge country, a major power.

So when the U.S.-led West seized Russia’s foreign assets, that was a wake-up call to countries around the world. And officials at their central bank started thinking about how they could diversify away from U.S. dollar assets before they’re the next victim. And this is certainly what’s been happening for years now in China.

Now, to be clear, this Financial Times report makes it clear that Chinese officials don’t want to simply dump all of their U.S. Treasury holdings for a few different reasons. First of all, this would be a kind of last resort. It would be a major escalation.

And China is actually trying to be diplomatic and it’s defending itself and it’s responding to Trump’s attacks proportionately. But China doesn’t want to escalate it further. And also, China doesn’t want to lose a lot of the value of its reserves, because if China were to dump all of these U.S. Treasuries, then the value of existing U.S. Treasury securities would fall, yields would go up.

And when yields go up, the current bonds that are out there, they fall in price. So China doesn’t want to hurt itself by reducing the value of its holdings as it dumps them onto the market. But again, this is a last resort.

If China needed to do so, the Financial Times report makes it clear that what China prefers is a gradual transition from treasuries to other assets, including foreign bonds and also gold. And Chinese officials describe this as maneuvering on a tightrope. However, as Trump continues to escalate his trade war against China, it’s increasingly untenable to be walking on a tightrope when you have a bunch of fire and a volcano under you.

And Chinese officials are warning that what the Trump administration is doing could basically amount not only to a seizure of China’s holdings, but even a default on U.S. national debt. Because in the financial press, there has been more and more discussion of the idea of a so-called Mar-a-Lago accord based on the Plaza accord the Ronald Reagan administration imposed on U.S. allies in 1985. And Trump’s top economic adviser, the economist Stephen Myron, has proposed the possibility of the U.S. forcing other countries to swap their current Treasury holdings for 100 year U.S. government bonds with no coupon, no yield.

So that means that with inflation over time, other countries are going to lose value on the bonds that they hold, U.S. government bonds. So this is essentially a way by which other countries will fund the U.S. government. They’ll be giving their money to fund the U.S. They could simply write checks to Treasury.

That would help us finance global public goods as well. And Chinese financial officials are saying that this would essentially amount to a de facto U.S. government default on its debt. So this would not only impact China, it would impact all countries around the world because basically all central banks around the world at least have some of their reserves held in U.S. assets, largely U.S. Treasury securities.

Now, as I said, I want to make this clear. It’s not just Donald Trump that is responsible for this de-dollarization. This has been a process going on for well over a decade.

Between 2015 and 2022, China’s holdings of U.S. Treasury securities fell by 17 percent. But in the past few years, it has rapidly accelerated, especially after the seizure of Russia’s U.S. assets in 2022. So between 2022 and 2024, China reduced its official Treasury holdings by more than 27 percent.

So again, we’ve seen an acceleration. And Trump’s trade war is going to only accelerate that even further. So this raises an important question.

As China reduces its holdings of U.S. assets, what is it replacing them with? Because China has a massive current account surplus, a huge trade surplus with the rest of the world. So it has all of these excess dollars and other currencies it gets from trading. What does it do with those excess currencies? If it simply converts everything into yuan, into its local currency, that would cause the price of the yuan to go up significantly against other currencies, which would hurt the competitiveness of Chinese exports.

China doesn’t want to have an overvalued yuan, which could contribute to deindustrialization and many of the problems we’ve seen in the U.S. So instead, China has been seeking alternatives. And what have those alternatives been? Well, one of them is that China has been seeking holdings of sovereign debt of other countries, including in Europe. So different European bonds from Germany and Switzerland and also Japan.

So buying Japanese assets denominated in the Japanese currency, the yen. And another major asset that China has been investing in is gold. And it’s not just China that’s doing this.

There are many countries, especially in the global south, that have been stockpiling gold in their reserves. And if you look at the list of the top 10 countries that in the past decade have added the most gold to their reserves, you can see that many of them are in BRICS or BRICS Curious. They’re around BRICS, including number one, China, number two, Russia, number three, Turkey or Turkey, which has been invited to join BRICS.

Number four, India, which is the I in BRICS. Also Kazakhstan, Singapore, Qatar, Uzbekistan and many other countries, especially in the global south. And why is that? Well, a big reason is that these countries are afraid that the U.S. could seize their holdings of U.S. Treasury securities, just like the U.S. seized Russia’s holdings and Iran’s holdings and Venezuela’s holdings.

However, I should emphasize that this is not just geopolitical. It also goes back to the 2008-2009 financial crisis in the U.S., because if you analyze global data of central bank holdings of gold, you can see that they were declining throughout the 90s in the early 2000s. But then immediately in 2009 with the U.S. financial crisis, what happened? That trend suddenly reversed and we’ve seen a significant increase in central bank purchases of gold.

So this is another sign that other countries are not only de-dollarizing for geopolitical reasons, but simply they are losing faith in the U.S. financial system, given how the U.S. economy has been built on a massive bubble. And as the U.S. economy has financialized, it’s looking more and more dangerous. This is a big reason why the price of gold has been skyrocketing for years, but especially in 2024 and 2025.

With more and more countries afraid of Trump’s tariffs and potential seizure of their Treasury holdings or fears of a de facto U.S. government default on its debt through the Mar-a-Lago accord and these 100-year zero coupon bonds, there’s more and more instability. There’s more and more uncertainty. And foreign investors, including a lot of foreign central banks, have been piling into gold, which surpassed 3000 U.S. dollars and has continued rising very rapidly.

What we’re essentially seeing is a kind of unofficial U.S. dollar devaluation against gold. You know, the U.S. dollar has been at the heart of the global financial system since at least 1944 in the Bretton Woods conference at the end of World War II, if not a bit earlier in the 1920s and 30s. And now what we’re seeing is that as the role of the U.S. dollar declines, there’s a kind of unofficial devaluation of the U.S. dollar, at least against gold.

And at least in the short term, this is what we’re seeing with the U.S. dollar falling against many other currencies. Now, I should be clear here, the foreign exchange market is often pretty volatile and it’s very possible that the U.S. dollar could go back up. But in response to Trump’s tariffs and foreign investors selling off U.S. assets, what we’ve seen is that the U.S. dollar has fallen pretty substantially against the yen, the Japanese currency.

And we’ve also seen the U.S. dollar fall pretty significantly against the euro by more than 8 percent so far in 2025, which is a pretty significant move. And this is because a lot of foreign investors have been selling their holdings of U.S. assets, including U.S. treasury securities, and instead converting their dollars to euros and buying euro denominated assets, including European bonds like German bonds, for instance. And the same thing has been happening with the Swiss franc.

Switzerland is not part of the European Union. It has its own currency. And the U.S. dollar has fallen nearly 9 percent against the Swiss franc so far in 2025, again, as foreign investors sell U.S. assets and buy Swiss assets.

So this is all very important and I would say historic because, you know, I’ve been reporting for several years now on the global de-dollarization movement with countries around the world seeking alternatives to the dominance of the U.S. dollar. And critics of my work, skeptics, have long said that there’s no alternative to the U.S. dollar. The common talking point that they repeat is that the U.S. dollar may have its issues, but they say that the U.S. dollar is the cleanest shirt in the laundry basket with other dirty currencies.

But what we’re actually seeing is that this talking point, there’s no alternative to the U.S. dollar and there’s no alternative to the U.S. Treasury security as the backbone of the global financial system. It’s proving not to be true. There are increasingly alternatives.

As Bloomberg put it in an article, quote, The world is finding a plausible alternative to treasuries, end quote. Bloomberg noted in this article from April that, quote, Global investors are finding there are credible alternatives to U.S. Treasury bonds, end quote, and that foreign investors have been piling into European bonds, especially German boons, which is the German term for bond, and also Japanese bonds. And one of the reasons for this is that foreign investors have not only lost confidence in the U.S. government with fears over a de facto default through a Mar-a-Lago accord and the weaponization of the U.S. dollar, but also simply because a lot of foreign investors are domestically exposed to a different currency.

They don’t use dollars at home. At home, they use the Japanese yen if they’re in Japan or if they’re in Europe, they use the euro. And as their currency has been rising against the dollar, as the dollar has been depreciating into their currencies, that means that they’re losing value on their investments in their local currency.

So, of course, they’re going to reduce their exposure to U.S. assets and invest more in assets in their local currency so they don’t lose value on their investment. And this is especially the case for Japan, because for years now, global investors have engaged in something known as a carry trade, where the yields on Japanese bonds were much lower than the yields on U.S. Treasury securities because the Federal Reserve, the U.S. Central Bank, had interest rates that were much higher than the Japanese central bank’s interest rate. So they were taking advantage of that interest rate differential.

This is known in finance as an arbitrage, where you take advantage of these small differences. So what happened in the carry trade is that investors would borrow money in Japanese yen. They would take on debt and pay low interest rates on that Japanese debt, and then they would convert those Japanese yen into U.S. dollars and buy U.S. assets, like, for instance, U.S. stocks or U.S. bonds.

However, that only works if one, the U.S. stocks they buy go up in price and there’s been a lot of volatility in the stock market, so they’ve been burnt by that. And two, if the value of U.S. bonds doesn’t fall, especially in terms of their foreign exchange risk. So they have to pay back that debt they owe in yen.

And when the yen was falling against the U.S. dollar, they were fine. But now that the dollar is falling against the yen, now that the yen is going up against the dollar, that means that these investors engaged in this carry trade have been burnt and have been selling off U.S. assets, which also contributed to a lot of volatility in the U.S. stock market and the bond market. And then they’ve been converting those dollars into yen to pay off the debt.

There’s been this unwinding of the carry trade. This is also what happened back in August of 2024 when there was a temporary crash in the U.S. stock market and other stock markets due to this unwinding of the carry trade. And now Trump’s tariffs have unleashed even more chaos, which has only incentivized foreign investors, especially in Japan, to reduce their exposure to U.S. holdings.

So what all of this shows is that the more that Donald Trump threatens countries around the world with tariffs and trade war, he says he was going to try to save the dominance of the U.S. dollar. But the more he does that, he’s actually accelerating the decline of U.S. dollar hegemony and the acceleration of de-dollarization. Again, as I’ve reiterated here, this is not something that started with Trump, but it’s a process that he is accelerating.

If you go back to 2000, more than 70 percent of the foreign exchange reserves held by central banks around the world was in U.S. dollar assets. As of 2022, that figure has fallen to somewhere in the 50th percentile range. If you measure for differences in the exchange rate, it’s around 56 percent.

And Trump’s tariffs are now going to further accelerate that decline. And it’s very likely that in a few years that figure will fall below 50 percent as foreign central banks diversify and seek new assets to hold in their reserves. And what this is confirming is an argument that I have been making and other analysts have been making for several years now, which is that we are seeing more and more of a multipolar currency world.

Now, I’m not saying and I’ve never said that the U.S. dollar is going to immediately collapse and there’s going to be hyperinflation and it’s going to become toilet paper. Anyone saying that is not serious. However, it’s also not serious to deny the fact that the dominance of the U.S. dollar is declining and there’s not going to be one currency that simply replaces the U.S. dollar at the center of the global financial system.

It’s not going to be one currency. It’s going to be a multipolar currency world, as even the Financial Times has been acknowledging. So foreign central banks and foreign financial institutions and pension funds and insurance companies and asset managers, they’re not only going to be holding U.S. assets, U.S. stocks and U.S. bonds, they’re investing in many other assets and diversifying their holdings.

And this is going to cause significant problems for the United States, because one of the main reasons that the U.S. has been able to maintain massive current account deficits, that is huge trade deficits with the rest of the world for decades, is because the U.S. dollar is the global reserve currency. So as the U.S. runs larger and larger trade deficits with other countries, it floods the world with dollars. And people and companies and financial firms and foreign central banks all around the world, they would take those dollars and invest them in U.S. assets.

And this is the way by which the U.S. was able to finance these huge current account deficits. But as global demand for the dollar decreases because the U.S. dollar’s dominance is decreasing over time, it’s going to become more and more difficult for the U.S. to finance its enormous current account deficit. And that also means it’s going to become more difficult for the U.S. government to finance its huge fiscal deficit without significant inflation.

Because, yes, it is true that the U.S. government owes debt in dollars, which the U.S. can print. It’s not like Argentina. Argentina owes debt in dollars, but Argentina can’t print dollars.

The U.S. government can print dollars, but when it prints dollars, that obviously causes inflation and inflation is already a significant problem in the U.S., which is why the Federal Reserve doesn’t want to reduce interest rates further. So historically, the U.S. government has relied on foreign investors to help to finance its large fiscal deficits. As recently as 2015, just a decade ago, about 34 percent of all U.S. Treasury securities were held by foreigners.

However, in the past decade, that number has fallen substantially and it’s now just 23 percent of U.S. Treasury securities are held by foreigners. And all of these policies that Trump is carrying out are likely to accelerate this decline. So there will be fewer and fewer foreign holders of U.S. Treasury securities, which means that it will be more and more difficult for the U.S. government to finance these huge deficits without significant inflation.

Again, the U.S. can print the currency, but that will cause inflation. And this is why the Trump administration and in particular the billionaire hedge fund manager who’s the Treasury Secretary, Scott Besant, this is why they’re so concerned about the bond market and why Besant constantly says publicly that the Trump administration is trying to bring down the yield on the 10 year Treasury security because the U.S. government is now spending hundreds of billions of dollars every year just paying the interest on its national debt. Federal interest payments are now more than three percent of U.S. GDP, and they have skyrocketed in the past few years after the Federal Reserve raised interest rates due to the inflation that was largely caused by the supply chain shocks coming out of the covid pandemic.

But inflation has remained stubbornly high and Trump’s tariffs are only going to make inflation even worse, which means the Fed is likely not going to cut interest rates, which means that interest payments will remain enormous for the U.S. government. This is why Donald Trump has been publicly attacking the chair of the Federal Reserve, Jerome Powell, calling him a loser. So that’s a quote, calling him a loser and demanding that he reduce rates now and now written in all caps because Trump is really concerned about this issue.

But the irony is that the more that Trump attacks the independence of the Fed, the more he’s scaring off foreign investors and encouraging them to sell their holdings of U.S. Treasury securities, which is only accelerating the very same problems that the Trump administration is so concerned about. So what I think all of this confirms is the argument that we hear at Geopolitical Economy Report have been making for a while, which is that de-dollarization is here to stay and it’s growing and it’s accelerating and it’s no longer just Global South countries in and around BRICS that are seeking alternatives to the U.S. dollar. Increasingly, it’s global investors who are de-dollarizing and it’s even longtime U.S. allies like Japan and some European countries that are seeking alternatives to the U.S. dollar.

And the more that Donald Trump threatens foreign countries and says he’s going to impose more and more tariffs and wage trade war and sanctions and other forms of economic warfare, this is actually blowing back and it’s accelerating the decline of the dominance of the U.S. dollar. On that note, I’m going to conclude. I am Ben Norton.

I’m the editor in chief of Geopolitical Economy Report. Please like and subscribe. Please share this.

I want to thank everyone for joining me today. I will see you all next time.