Trump's tariff threat risks US growth by fueling dedollarization. We analyze if protectionism will accelerate global trade shifts and end the dollar's dominance.
The Trump Tariff Tsunami: Will US Economic Growth Drown in Dedollarization?
Por: Carlos Santos
The global economy stands at a precarious juncture, a direct result of escalating trade tensions and nationalist economic policies. The proposal by Donald Trump to impose sweeping, high tariffs—a so-called "tariff tsunami"—on imports is poised to shake the foundations of international trade. I, Carlos Santos, believe this policy, framed as a measure to boost domestic production and US economic might, presents a profound paradox: while tariffs can offer short-term protection to specific industries, the retaliatory effects could be catastrophic, accelerating a global shift away from the dollar's dominance. This is not merely a political debate; it is an economic earthquake with the potential to fundamentally reshape global commerce, pushing victimized nations towards new trade routes and alternative reserve currencies. The core question, therefore, is whether the United States economy can truly achieve sustainable growth by risking the very structure of the global system it helped build. The answer, as we shall explore in this analysis for the Diário do Carlos Santos blog, lies in the strategic responses of the world's major economies and the long-term viability of dedollarization movements.
Tariffs and the Tectonic Shift: Assessing the US Dollar’s Vulnerability in a Retaliatory World
🔍 Zooming In on Reality
The reality of a large-scale tariff imposition is far more nuanced than the simple 'buy American' narrative suggests. Tariffs, at their most basic, are taxes paid by the importer—often domestic businesses and, eventually, American consumers—not the foreign exporter. While Trump’s stated goal is to incentivize local manufacturing and bring supply chains back to the US, the immediate effect is increased costs on essential goods and materials. This inflationary pressure directly impacts the purchasing power of the average American family, dampening consumer confidence and demand.
Furthermore, the global supply chain is now so deeply integrated that disentangling it through protectionism is immensely difficult and expensive. Components for US-manufactured goods often cross borders multiple times. A 10% or even a 60% tariff applied broadly would not just target finished goods from China; it would hit parts from Mexico, raw materials from Brazil, and specialized components from Germany. Companies like Apple, Ford, and Boeing, which rely on precise, multi-national logistics, would face a brutal choice: absorb the cost, pass it to consumers, or scramble to restructure their entire manufacturing footprint—a costly, multi-year process.
The political dimension adds another layer of complexity. Victim nations, far from passively accepting the economic penalty, will certainly implement retaliatory tariffs. This creates a cycle where US exports—from agricultural products like soybeans to industrial machinery—become prohibitively expensive abroad. The core reality is that the US economy, while large, is not a closed system; its growth is deeply dependent on its ability to sell goods and services to the world. Crippling the global demand for US products in the name of protectionism is a self-inflicted wound, directly challenging the narrative of an inevitable US economic boom. (Source: WTO data on retaliatory actions in past trade disputes).
📊 Panorama in Numbers
The sheer scale of the potential tariff impact requires grounding in concrete figures. During the Trump administration’s 2018-2019 trade war, the US imposed tariffs on approximately $370 billion in Chinese goods. Studies from various bodies, including the Federal Reserve and the World Bank, indicated that these costs were almost entirely borne by US importers and consumers, resulting in lost US real income of roughly $1.4 billion per month by the end of 2019. The proposed "tariff tsunami" could target all imports, potentially covering over $3 trillion in annual trade volume.
This economic shock would be directly measurable in inflation, trade balances, and currency stability. Consider the numbers driving the dedollarization movement:
US Dollar Share of Global Reserves: While the dollar remains dominant, its share has been steadily declining. It fell from over 70% in 2000 to approximately 58% in 2024.
Alternative Currencies: The Euro and the Chinese Yuan (RMB) are gaining ground in trade settlements. For instance, the share of the RMB in global trade finance tripled between 2019 and 2023.
Bilateral Trade Deals: Countries like Brazil, China, India, and Russia are actively promoting trade settlement in their own currencies, circumventing the dollar. The volume of non-dollar trade between China and Russia grew by over 60% following Western sanctions, underscoring the immediate alternative routes available.
The Debt Factor: The enormous and growing US national debt (currently exceeding $34 trillion), combined with the risk of weaponizing the dollar through sanctions and aggressive tariffs, provides a powerful numerical incentive for other nations to find a safe harbor away from US financial risks.
In essence, the numbers suggest that while tariffs might inject a temporary boost into some domestic sectors, the macro damage—inflation, decreased export competitiveness, and the acceleration of dedollarization—presents a far greater and more long-lasting numerical headwind to sustained US economic growth. (Source: IMF COFER data, SWIFT, and US Treasury Department reports).
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💬 What They Are Saying
The debate surrounding a potential Trump tariff hike and its effect on the US economy is sharply polarized, reflecting deep ideological divisions.
Proponents (Advocates for the tariffs): Supporters, often from nationalist and certain industrial sectors, argue that tariffs are a necessary tool to correct decades of perceived unfair trade practices. They claim that the tariffs will:
Level the Playing Field: Force countries like China to stop "dumping" cheap goods and start trading fairly.
Boost Domestic Jobs: High tariffs make imported goods more expensive, causing companies to bring manufacturing back home, leading to job creation and higher wages for American workers.
National Security: Reduce reliance on geopolitical rivals for essential goods (e.g., semiconductors, medical supplies).
As one influential trade advisor recently stated: "The short-term pain of tariffs is the necessary price for long-term American industrial dominance and self-sufficiency."
Critics (Opponents of the tariffs): Economists from major institutions and many business leaders overwhelmingly warn against the strategy. Their arguments center on efficiency and global stability:
Inflationary Impact: Tariffs are simply a tax on consumers, directly raising the cost of living and potentially sparking a recession.
Retaliation Risk: Foreign countries will inevitably target US exports, hurting American farmers and large manufacturers like Boeing and Caterpillar.
Dedollarization Acceleration: The unpredictable nature of US trade policy, particularly the threat of using the dollar as a weapon, pushes trading partners to seek stability elsewhere, bypassing the US currency.
A prominent Nobel laureate economist warned: "Weaponizing trade and finance risks the entire global economic structure. The US dollar's status is a privilege, not a right, and aggressive protectionism is the fastest way to lose it."
The consensus among major international financial bodies is one of profound caution, viewing large-scale tariffs as a distortion of market forces that primarily benefits protected industries at the expense of general economic welfare. (Source: Congressional Budget Office (CBO) reports and academic papers from the National Bureau of Economic Research).
🧭 Possible Paths
Given the reality of a potential tariff regime and the growing desire for dedollarization, the global economy faces three main possible paths:
1. The 'Isolated Boom' Path (Low Probability):
In this scenario, the US implements high tariffs, but the domestic benefits somehow outweigh the foreign retaliation. American manufacturing sees a huge, immediate surge in investment and job creation. Foreign nations, despite their grievances, continue to trade with the US under the new conditions due to the sheer size of the American market, and the dedollarization trend stalls. Result: The US economy grows robustly, but global trade shrinks, making the rest of the world poorer and more reliant on domestic consumption. This path relies on the unlikely premise that foreign countries will not retaliate meaningfully.
2. The 'Retaliatory Stagflation' Path (High Probability):
The US imposes tariffs, prompting aggressive and targeted retaliation from the EU, China, India, and others. US consumers face massive price hikes (inflation) due to import taxes, while US exporters suffer from reduced demand abroad. The global economy contracts. Dedollarization accelerates as countries seek to settle trade in regional currency blocs (e.g., a BRICS currency basket or expanded use of the Euro). Result: The US suffers from stagflation—high inflation and low growth—as its global competitiveness is dismantled, and the dollar’s role is significantly diminished over the medium term.
3. The 'Regional Bloc' Path (Medium-to-High Probability):
This path sees the world fracturing into distinct, dollar-independent trading and financial blocs. The US focuses inward, prioritizing North American supply chains (USMCA partners). Asia strengthens its regional trade using the RMB and other regional currencies. Europe solidifies the Euro's role for continental trade and expands trade with non-US-aligned nations. The tariffs do not lead to a US manufacturing boom, but they successfully push former trading partners into tighter, dollar-free alliances. Result: The US economy neither booms nor collapses, but its influence wanes dramatically as the dollar loses its function as the global trade currency, leading to higher borrowing costs for the US government.
The current geopolitical climate and the clear moves by major economies towards bilateral currency swaps make the 'Retaliatory Stagflation' and 'Regional Bloc' paths the most realistic outcomes, fundamentally challenging the assumption of US economic supremacy. (Source: Analyses from the World Economic Forum and various central bank statements).
🧠 Food for Thought…
The discussion about tariffs and dedollarization brings us to a crucial philosophical point: What is the true source of a nation's long-term economic strength?
Is it the enforcement of restrictive, protectionist measures that temporarily shield inefficient domestic industries? Or is it the embrace of innovation, technological leadership, and participation in a competitive, rules-based global system?
History suggests the latter. The economic powerhouse of the United States was built on the principles of free enterprise, competition, and the stability provided by the US dollar, which facilitated global trade for everyone. When a country begins to use its economic leverage—specifically its currency's status—as a political weapon (via sanctions) or a blunt instrument (via sweeping tariffs), it inadvertently teaches the world a dangerous lesson: vulnerability is costly, and diversification is essential.
For the US, the "tariff tsunami" is not just a tax policy; it is a test of confidence. If global central banks, sovereign wealth funds, and major corporations lose faith in the dollar's reliability and neutrality, the cost to the US will be staggering. It means higher interest rates for US borrowers, reduced foreign investment, and an end to the "exorbitant privilege" of printing the world’s reserve currency. The potential short-term gains from protecting domestic steel or aluminum production pale in comparison to the long-term, systemic loss of financial dominance. The US must consider whether its current policy path is designed for a momentary political win or for sustained, multi-decade economic leadership. The answer will determine its fate. (Source: Historical analysis of the Smoot-Hawley Tariff Act and its role in the Great Depression).
📚 Point of Departure
The current economic landscape demands a reassessment of fundamental assumptions. The long-held belief that the US dollar's dominance is irreversible is the single most dangerous assumption underpinning the aggressive tariff strategy. The "Point of Departure" for the global economy is that major trading nations are no longer simply complaining about US policy; they are actively building the infrastructure for a post-dollar world.
This infrastructural shift manifests in several key areas:
Payment Systems: The expansion of alternative payment mechanisms (e.g., China’s CIPS) that bypass the US-controlled SWIFT system.
Bilateral Currency Swaps: Agreements between central banks (e.g., China-Brazil, India-UAE) to settle trade directly in their national currencies, eliminating the need for dollar conversion.
Gold Accumulation: A record-breaking rush by central banks, especially in the East, to buy gold, diversifying their reserves away from US Treasuries.
This "Point of Departure" means that the consequences of a US tariff war are now multiplied by the immediate availability of alternative trade and financial routes. In the past, a victimized nation had few options but to absorb the pain. Today, they can pivot to a non-US trading bloc, sign a direct currency swap, and continue commerce with minimal disruption to the US dollar. This structural change is the real threat to US economic growth, far surpassing the direct effects of trade deficits. The US can no longer rely on the sheer inertia of the dollar system to absorb its policy mistakes. (Source: Bank for International Settlements (BIS) reports on currency swap lines).
📦 Box Informativo 📚 Did You Know?
The "Exorbitant Privilege" and How Tariffs Endanger It
The status of the US dollar as the world's primary reserve and trade currency grants the US an "exorbitant privilege," a term coined by former French Finance Minister Valéry Giscard d’Estaing in the 1960s.
What is this privilege?
Lower Borrowing Costs: Because the world constantly demands dollars for trade and reserves, the US government can borrow money (issue Treasury bonds) at lower interest rates than virtually any other country. This makes funding the national debt significantly cheaper.
Financial Flexibility: The US can finance large trade deficits simply by issuing more dollar-denominated assets.
Inflation Export: When the US prints more money, some of the resulting inflationary pressure is exported globally as the dollar floods international markets.
How Do Tariffs Threaten It?
Tariffs, particularly when they lead to retaliation and global trade disruption, fundamentally erode the trust and stability required for this privilege. When foreign nations are penalized for trading with the US and are simultaneously sanctioned for political reasons, they are directly incentivized to:
Reduce Dollar Holdings: Sell US Treasury bonds to diversify their national reserves into gold, Euros, or other currencies.
Bypass Dollar Trade: Insist on settling future oil, mineral, and commodity trade in their local currencies.
Accelerate Financial Block Development: Invest heavily in non-US financial infrastructure, making the SWIFT system obsolete for non-Western trade.
The danger of a tariff war is not the loss of a few trade deals; it is the systemic rejection of the dollar as the neutral, reliable global currency, which is the ultimate source of US financial power. This process of trust erosion is slow, but once lost, it is nearly impossible to regain. (Source: Historical economic literature on reserve currencies and the petrodollar system).
🗺️ From Here, Where?
The path forward for the US economy, in the face of escalating protectionism and accelerated dedollarization, is highly dependent on whether it prioritizes short-term political gains or long-term systemic health.
If the Tariffs Proceed (The Likely Scenario):
The US economy will likely experience a period of elevated volatility. Inflation will tick up as import costs rise, hitting the consumer sector hardest. Simultaneously, major export industries (especially agriculture and high-tech manufacturing) will be hammered by foreign retaliation. The biggest impact, however, will be structural. The focus will shift from global supply chains to regional self-sufficiency (USMCA/North America), and the US will find itself increasingly excluded from the massive, dollar-free trade routes being built by the BRICS+ alliance. The dollar's slow decline from its peak as the world's sole reserve currency will become a perceptible slide, increasing the cost of capital for the US government.
The Optimal, But Unlikely, Counter-Path:
The best course for the US would be to immediately de-escalate trade tensions, restore faith in the rules-based global trading system, and focus its competitive efforts on technological superiority and human capital. This means investing heavily in R&D, advanced manufacturing (without protectionist walls), and education, allowing US products and services to compete on quality and innovation, not on tax barriers. A neutral, stable dollar, supported by consistent policy, would halt or slow the dedollarization trend, ensuring the US retains its "exorbitant privilege" and global financial leadership.
The critical decision point is whether the US chooses a path of isolationist protectionism that risks the very foundation of its financial power, or a path of competitive global leadership that ensures sustained prosperity. (Source: US Chamber of Commerce and Peterson Institute for International Economics (PIIE) policy recommendations).
🌐 It’s on the Net, It’s Online
"O povo posta, a gente pensa. Tá na rede, tá oline!"
The discussion surrounding Trump's tariffs and dedollarization is not confined to academic journals; it's a hot topic across social media, specialized financial forums, and global news feeds. The collective digital commentary reveals a growing awareness of the interconnected risks.
On platforms like X (formerly Twitter) and Reddit's financial communities, the sentiment is often one of anxiety among US consumers regarding price hikes and confusion among small business owners reliant on imported components. However, the most critical global conversation is taking place in economic and policy circles online, focusing less on the US perspective and more on the strategic pivot of other nations.
Key trends observed in global online discourse include:
BRICS+ Expansion: The expansion of the BRICS group is consistently framed as an explicit move to create an economic counterbalance to the G7 and the US dollar. Online discussions track every new bilateral trade agreement settled in local currency as a victory for "multipolarity."
Gold Standard Speculation: There is a constant, high-volume chatter surrounding central bank gold purchases, with many analysts online interpreting the moves as a definitive hedge against US financial instability and the eventual decline of the dollar.
The Sanctions Backlash: The use of the dollar to enforce sanctions against Russia, Iran, and Venezuela is now a pervasive theme in non-Western media, directly fueling the digital argument for finding non-dollar banking and payment solutions.
This online conversation is critical because it reflects the real-time sentiment that drives investment and policy decisions globally. The perceived American willingness to dismantle the global trade order is creating a digital echo chamber that validates and accelerates the movement towards dedollarization. The perception of US unreliability is rapidly hardening into global policy. (Source: Social media analytics of financial keywords and non-Western news aggregators).
🔗 Anchor of Knowledge
As the world grapples with this high-stakes economic realignment, it is crucial to stay informed about the specific trade conflicts that highlight the fragility of US economic relationships. For a deeper understanding of how these political tensions are already threatening major trade partnerships and potentially accelerating the global pivot, you should definitely read a detailed analysis on how recent US political rhetoric is affecting major US trade partners. The full report provides valuable insight into the complex diplomacy required to navigate these trade wars and how nations like Brazil are reacting to perceived US aggression; click here to continue your reading and get the full analysis on Lula's stance and the US-Brazil trade risks.
Final Reflection
The proposed "tariff tsunami" by Donald Trump is a classic example of a policy that delivers a spectacular political headline while threatening an unspectacular, but profound, economic decay. The US economy does not exist in a vacuum. Its prosperity is inextricably linked to the global willingness to use the dollar and adhere to the trade rules it championned. By embracing protectionism and financial weaponization, the US is essentially handing a roadmap to its economic rivals, showing them exactly how to build a world that no longer needs the dollar. The question is not if dedollarization will happen, but how fast. If the US chooses tariffs, it chooses the fastest route. The genuine, sustainable growth of the United States hinges not on taxing foreign goods, but on leading the world through innovation and stability. It's a choice between protectionist nostalgia and future dominance. The world is watching, and more importantly, the world is actively making alternative arrangements.
Recursos e Fontes em Destaque
International Monetary Fund (IMF): Currency Composition of Official Foreign Exchange Reserves (COFER) Data
Bank for International Settlements (BIS): Reports on Global Liquidity and Currency Swaps
Peterson Institute for International Economics (PIIE): Policy Briefs on US Tariff Impacts
World Trade Organization (WTO): Reports on Retaliatory Tariffs
US Treasury Department: Data on US National Debt and Foreign Holdings
⚖️ Disclaimer Editorial
This article reflects a critical and opinionated analysis produced for Diário do Carlos Santos, based on public information, news reports, and data from confidential sources. It does not represent an official communication or institutional position of any other companies or entities mentioned here.
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