By Bernard Condon, Associated Press business writer
NEW YORK (AP) – Of the threat tariffs pose to the US economy, nothing is more strange than the sale of the dollar.
Currency is constantly rising due to fear of inflation, central bank movements and other factors. But economists are concerned that the recent dollar decline has been so dramatic that President Donald Trump reflects something more sinister as he tries to restructure world trade. Loss of trust in the US
Dollar control and safe shelter in cross-border trade have been nurtured for decades by the administration of both parties to help us continue to cut costs and enable Washington to project power overseas.
“Global trust and dependence on the dollar have been built up for over half a century,” says Barry Aisingreen, an economist at the University of California, Berkeley. “But it can be lost in the blink of an eye.”
Since mid-January, the dollar has dropped 9% against a rare, sharp decline, basket of currencies, to its lowest level in three years.
Many investors, surprised by Trump, don’t think the dollar will be pushed quickly from its global reserve currency, and hope for a slower decline instead. But considering the benefits that are lost, it’s still scary enough.
With many of the world’s goods being exchanged for dollars, demand for currency continues to grow stronger despite the US double its federal debt in decades and doing other things that normally flee investors. This allowed the US government, consumers and businesses to rent at unnaturally low rates.
Also, the dominance of the dollar allows the US to push away other countries such as Venezuela, Iran, and Russia, and lock them from the currencies needed to buy and sell alongside others.
As economists call it, “exorbitant privileges” are suddenly at risk.
“The dollar’s safe haven is being eroded,” Deutsche Bank said earlier this month in a memo to its client warning of a “crisis of trust.” Added more careful reports by Capital Economics. “It’s no longer an exaggeration to say that the reserve state of the dollar and the broader dominant role are at issue, at least to some extent.”
Traditionally, the dollar is strengthened when tariffs subside the demand for foreign products.
But the dollar has not only failed to strengthen this time, it has also baffled economists and hurt consumers. The dollar lost more than 5% against the euro and pound, and 6% against the yen since early April.
As American travelers overseas know, you can buy more with stronger dollars, and you can buy less with weaker ones. Currently, prices for French wine and Korean electronics, as well as many other imports, can be expensive not only due to tariffs but also weak currency.
Also, losses in safe haven status can strike a different way of hitting higher fees for mortgages and car loan transactions, as lenders require more attention to the additional risks.
What’s more worrying is the higher interest rates on US federal debt balloons, already at a high risk of US annual economic output 120%.
“Most countries with that debt to GDP will cause a major crisis. The only reason we run away is that the world needs the dollar to trade,” says Ben Steele, an economist with the Council of Foreign Relations. “At some point, people will take a serious look at dollar alternatives.”
They’ve already helped a bit from their US economic rivals.
China has been in the original trade agreement for years with Brazil for agricultural products, Russian oil, South Korea and other goods. It also lends central banks for cash in Argentina, Pakistan and other countries, replacing the dollar as a last resort emergency.
Another possible US alternative in the future if the market grows: cryptocurrency.
“If the deficit continues to swell, America risks losing its position in digital assets like Bitcoin,” BlackRock Chairman Larry Fink said, “on the control of the dollar.”
Not everyone is convinced that the big reason for the dollar is falling is because of lost faith in the US.
Mizuho Financial economist Steve Ricchiuto says the dollar’s weakness reflects expectations of higher inflation due to tariffs. But even if investors aren’t that comfortable holding on to the dollar, he says they really don’t have many options. Other currencies and other assets like yuan, bitcoin, gold and other assets are not vast enough to handle all the demand.
“The US will lose its reserve currency when there’s someone there to take it,” says Richtute. “Now there’s no alternative.”
Perhaps that’s true, but Trump is testing his limits.
It’s not just the tariffs, but the unstable way he unfolded them. Unpredictability leads to less stability, less reliable and less secure in the US.
There are also questions about his logic to justify the policy. Trump says the US needs tariffs to curb the trade deficit with other countries. But most economists believe that these deficits, which measure trade in goods rather than services, are bad measures of whether the country is “taking” America, as Trump says.
Trump has also repeatedly threatened to cut the Federal Reserve independence, fearing that he would force interest rates to force them, even if he risked runaway inflation in doing so. It’s a surefire way to make people get away from the dollar. After Fed Chair Jerome Powell said Wednesday he would wait for him to make some rate move, Trump blasted him, saying, “Powell’s firing can’t come quickly enough!”
Economists critical of Trump’s April 2nd tariff announcement recall another incident, the 1956 Suez crisis that broke the back of the British pound. Military attacks on Egypt have exacerbated and exposed the political incompetence of Britain, which has been poorly planned and sank trust within the country. The pound fell sharply, causing its century-long position to collapse as its dominant trade and reserves collapsed.
Berkeley’s Aichen Green says Rebate Day could be remembered as a similar turning point if the president doesn’t take notice, as Trump called April 2nd.
“It puts the first step down a slippery slope that will lose international confidence in the US dollar.”
Original issue: April 18, 2025, 11:16am EDT
