PolitiLens

Tariffs, Turmoil, and Trust: Is the Dollar Losing Its Global Grip?"

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Is the US Dollar Facing a Confidence Crisis?

Growing concerns over erratic economic policies have led investors to question the long-standing stability of the US dollar. Following President Donald Trump’s announcement of sweeping tariffs on April 2—termed “Liberation Day”—financial markets wobbled, and the dollar took a sharp hit.

While stock markets in the US have since recovered, the dollar has continued to slide. Traditionally a safe haven during periods of uncertainty, the greenback’s continued decline reflects investor anxiety about America’s economic direction and the broader impact of protectionist trade policies. Many now fear that such moves could tip the US into recession later this year.

Trump's aggressive approach to tariffs has sparked speculation about a gradual erosion of dollar dominance in the global financial system. In a recent analysis, Deutsche Bank highlighted a looming “dollar confidence crisis” triggered by the uncertainty that followed the April 2 announcement.

What Happened to the Dollar?

The introduction of wide-ranging tariffs against numerous countries triggered a loss of trust in the US economy. In just three days after the policy reveal, over $5 trillion in value was wiped off the S&P 500 index. Even US Treasury bonds—usually seen as rock-solid investments—experienced selloffs, leading to increased borrowing costs for the government.

Although Trump later delayed most tariffs by 90 days (excluding those on Chinese goods), investor sentiment remains fragile. Since the start of April, the dollar has dropped 3% against a basket of global currencies, hitting its lowest level in three years. This follows an overall 10% fall since early 2025.

Why Does the Dollar Matter Globally?

The US dollar has been the cornerstone of global finance for decades. Its rise to prominence began during the world wars, and solidified in the 1970s when President Nixon decoupled it from the gold standard. Since then, it has become the default anchor for international trade and finance.

Even today:

• More than half of global trade is priced in dollars.

• Around 60% of global bank deposits are held in dollars.

• Nearly 70% of international bonds are dollar-denominated.

• Over half of the world’s foreign exchange reserves are maintained in the greenback.

This dominance relies heavily on confidence in the US economy, legal infrastructure, and political stability—factors now being questioned due to sudden policy shifts.

The Bigger Picture

Trump’s unconventional approach and disregard for global economic norms have raised red flags. Many investors are reassessing their exposure to US assets, worried that the risks may now outweigh the historical stability the dollar once promised.

Although a total collapse of the dollar’s status is unlikely in the short term, the foundation of its dominance—global trust—is clearly under strain. If uncertainty persists, other currencies or financial systems may begin to chip away at the dollar’s position.