The trade tariff war that Donald Trump introduced on March 3rd has created a situation where the world is at war. Trade war. China responded by saying that they would hit back by imposing 10-15% tariffs on US farm products but, more importantly, have said that they are ready for war … any sort of war.
If war is what the U.S. wants, be it a tariff war, a trade war or any other type of war, we’re ready to fight till the end.
https://x.com/ChineseEmbinUS/status/1897149198300291120
These tariffs are adding a lot more oil to the fire of a likely World War III as President Macron of France came out attacking the US policy of withdrawing support for Ukraine. In his televised speech, France Proposes a “Nuclear Umbrella” over the EU, and emphasized that while Russia may have more warheads, France has enough to protect Europe. He also added that France rejects Putin’s and Trump’s peace plans. Instead, France, likely alongside the UK, is working on a European-led peace initiative ensuring that Ukraine’s future won’t be dictated by Washington or Moscow.
Add to all of this that we have huge frictions in Gaza, Sudan, Yemen and other parts of the world, and you have a bubbling cauldron of a future war. A war of trade, tariffs and boots on the ground. America is no longer a reliable partner and its each country or region for itself.
What does this mean in finance?
Well, regardless of the outcome of the trade, tariff and arms wars, it is most likely to result in the acceleration of de-dollarization, something that started years ago. I talked about this two years ago noting that, according to the IMF, US dollar reserves were 66% of global currencies a decade ago but now just under 60%. In even starker context, the dollar today represents just 58% of world reserve currencies, down from 73% in 2001.
JPMorgan’s Global Research added, in 2024, that there are signs of de-dollarization in the commodities space, where energy transactions are increasingly priced in non-USD currencies and that, globally, new payments systems are facilitating cross-border transactions without the involvement of U.S. banks.
This is further reinforced by a research note from Deutsche Bank this week, which claims that the US dollar is in danger of losing its safe haven status. As Bloomberg reports it, Deutsche Bank head of FX strategy, George Saravelos, believes that “the dollar is not strengthening materially.
“Bringing it all together we are starting to become more open-minded to the prospects of a broader weaker trend unfolding” for the dollar, Saravelos said. “Two pillars of America’s role in the world are being fundamentally challenged: the US’s security backstop for Europe and the respect of rules-based free trade.”
In other words, Trump’s actions on Ukraine and trade are trashing the dollar.
Nevertheless, their conclusion is that “while diversification away from the dollar is a growing trend, the factors that support dollar dominance remain well-entrenched, and meaningful de-dollarization will likely take decades”.
Hmmm … not sure about that. The reason being that the dominance of the dollar has significantly shifted since the rise of China in the past quarter century and this chart, courtesy of Barrie Wilkinson on LinkedIn shows it well:
China dominates global trade in a massive shift from the start of the century and a chapter from my book of 2007: The Future of Banking in a Globalised World. Back then I forecast that the largest banks would be Chinese within a decade and the Americans laughed at me. Today, the largest banks in the world are Chinese, and no one is laughing anymore.
Source: The Financial Times
Bear in mind that this chart was very different in the year 2000, when no Chinese bank appeared in the top world bank list.
Times have changed.
I’m sure Donald Trump knows this but, in creating a war over trade with China, the most likely outcome will be a shift away from dollar reserves to gold reserves, cryptocurrency reserves and a basket of CBDCs.
Well done Mr. President. You just killed the dollar to be replaced with what?
Postscript thought:
Donald Trump kills the dollar to guarantee he and Elon run a cryptoworld
Donald Trump is giving the euro a chance to dethrone the dollar
