President Donald Trump’s return to the political stage has reignited a wave of aggressive tariff measures, setting the U.S. on a collision course with key trading partners and risking long-term economic disruption. What began in 2018 as a trade spat with China is now evolving into a full-blown structural shift in the global economic order-one that could end the U.S. dollar’s century-long hegemony, strain the American economy, and fracture global trade cooperation.
With Trump now imposing a 145% tariff on Chinese goods and new levies on imports from Europe, Mexico, and Vietnam, the ripple effects are already taking shape-some immediate, others far more enduring.
At the heart of the global economic order lies the U.S. dollar. Since World War II, the dollar has functioned as the world’s primary reserve currency, underpinning international trade, commodity pricing, and sovereign reserves. But this privileged position is now under pressure-not from foreign adversaries, but from within.
The new round of tariffs is accelerating global de-dollarization, a trend already in motion since the first wave of Trump-era trade wars. In response to U.S. trade unpredictability and sanctions weaponization, countries like China, Russia, India, and even Saudi Arabia are shifting away from dollar-denominated trade.
According to the IMF’s COFER database, the U.S. dollar’s share of global foreign exchange reserves has dropped from 65% in 2016 to 58.36% by 2023. The yuan’s share has more than quadrupled, and central banks across Africa, Asia, and South America are increasing their gold and alternative currency holdings.
With China settling over 60% of its trade with Russia in yuan and Gulf states exploring petro-yuan agreements, the infrastructure for a post-dollar world is being quietly but steadily built.
Tariffs have long been touted as tools to protect American industry. But the economic reality has been more complicated-and painful.
During the previous tariff wave (2018-2020), the National Bureau of Economic Research found that virtually 100% of tariffs were passed on to U.S. consumers and firms, raising prices on imported goods. The Federal Reserve estimates that these measures reduced GDP by 0.3% annually and led to 300,000 job losses, especially in export-heavy and agriculture-dependent states.
Now, the stakes are even higher. Trump’s tariffs on China would hit $500+ billion in annual imports, threatening to drive up inflation, disrupt supply chains, and spark retaliation.
A 2024 Peterson Institute study warned that a second tariff escalation could trigger 2-3% inflation increases and cost the average U.S. household $2,000 per year. Industries reliant on global components-such as auto, electronics, and pharmaceuticals-are particularly vulnerable.
What’s more, retaliation has already begun. China has announced new import taxes on American soybeans and liquefied natural gas, while the EU is considering levies on U.S. digital services and agriculture.
The dollar is gradually losing its anchor role in global finance.
Trump’s tariffs have also forced America’s allies and adversaries alike to rethink their economic dependencies.
The European Union, previously a close ally, has pushed for “strategic autonomy”, strengthening trade ties with Asia and the Global South. The RCEP trade bloc, encompassing 15 Asia-Pacific countries and 30% of global GDP, has begun settling transactions in local currencies rather than dollars.
Meanwhile, BRICS+ is expanding its footprint, with members like Brazil, Russia, India, China, and South Africa pushing for a multi-currency trade system, potentially underpinned by a common BRICS settlement unit. The group is in advanced talks with Saudi Arabia, UAE, Iran, and Indonesia, aiming to erode dollar supremacy by building alternatives to SWIFT and IMF infrastructure. If this trend continues, the global economy could face a new era: fragmentation over integration.
U.S. allies diversify trade to avoid being collateral damage in protectionist battles.
China has become a hub for non-dollar trade, thanks to CIPS (Cross-Border Interbank Payment System) and BRI (Belt and Road Initiative).
Emerging markets hedge against dollar exposure, using gold, CBDCs, and regional currency arrangements.
This doesn’t mean the dollar will collapse. But its singular dominance is likely ending. By 2035, analysts at Goldman Sachs and Morgan Stanley project the dollar could represent just 50% of global reserves, down from 71% in 2000. The euro, yuan, and possibly a BRICS currency will rise to fill the vacuum.
The World Bank warns that protectionism could reduce global trade volumes by up to 10% over the next decade, reducing growth in both developed and emerging economies.
In trying to protect U.S. industry and assert dominance through tariffs, the United States may be inadvertently catalyzing its strategic decline.
The dollar is gradually losing its anchor role in global finance.
The American consumer and industrial sectors face higher costs.
U.S. trading partners are forging alternative pathways, economically and politically.
The world is gradually shifting to multipolarism, with US influence and dollar hegemony decreasing. If the U.S. persists with blunt protectionism over strategic diplomacy, it may soon find itself on the outside of the very global system it once designed-watching as new blocs, new currencies, and new centres of power reshape the 21st-century economic order.
The writer is Foreign Research Associate, Centre of Excellence, China Pakistan Economic Corridor, Islamabad.