Trade Wars, Sanctions, Gold: Is Dollar’s Dominance Ending?

What prevents the dollar from decreasing in value? Largely, China. The United States represents a vast consumer market — it is the single largest destination for exports from numerous countries. When the dollar declines, imports to the U.S. become pricier, leading American consumers to reduce their purchases. This directly impacts exporters overseas, particularly in nations like China, which rely on U.S. demand for their economic growth. However, will this advantageous situation persist indefinitely? As trade wars, sanctions, and changing geopolitical dynamics drive nations to reconsider their dependence on the dollar, signs of stress are becoming apparent.

For investors, the destiny of the dollar is of great significance — it influences global capital flows, commodity prices, and the comparative performance of international markets. A change in dollar supremacy could have far-reaching effects on exchange rates, inflation expectations, and global asset valuations. Related: This metric indicates the S&P 500 Poised For A 40% Crash?

For investors aiming to navigate a transforming landscape, the Trefis High Quality Portfolio provides a systematic approach to staying ahead of evolving market conditions. It has consistently outperformed its benchmark — which is a combination of the S&P 500, Russell, and S&P MidCap indices — and has achieved returns greater than 105% since its launch. What accounts for this success? Generally, stocks within the HQ Portfolio have delivered better returns with lower risk relative to the benchmark index; offering a steadier experience as shown in HQ Portfolio performance metrics.

Global Stake in America’s Currency

Nevertheless, for the moment, Beijing retains a substantial motivation to prevent the dollar from plummeting too drastically. In 2023, the U.S. made up around 14% of China’s total exports — about 3% of its GDP — a significant portion for an economy where exports remain a vital growth component. China frequently intervenes in currency markets by purchasing U.S. dollars and selling yuan (Renminbi), which helps to keep the yuan from strongly appreciating while maintaining export competitiveness. This rationale applies beyond just China.

For export-oriented economies like South Korea and much of Southeast Asia, a stable or robust dollar bolsters trade, employment, and overall expansion. Their central banks hold substantial dollar reserves and actively participate in currency markets in part to safeguard this export-driven growth. Even the nations that are not major exporters to the U.S. may often find themselves doing similarly, as their trading partners price their goods in dollars. Consequently, the global community has a collective interest in maintaining a stable dollar — not merely to assist the U.S., but because it benefits their own stability and prosperity.

Why Dollar Dominates

The U.S. dollar’s position as the leading global reserve currency is underpinned by strong demand for Treasury securities, the scale of the U.S. economy, the depth of its financial markets, and its geopolitical clout. The Treasury market stands as the world’s most substantial and liquid asset class, providing investors with safety, transparency, and the capacity to move significant amounts at any time. No other currency maintains markets large and open enough to fulfill this function. Global banks, corporations, and central banks depend on the dollar for lending, borrowing, and cross-border transactions. Over the years, this has established a network effect: the more prevalent the use of the dollar, the more vital it becomes. The widespread adoption of the U.S. dollar in international trade, finance, and as a reserve asset fosters a structural demand that upholds its value. But how long can this balance endure?

Threats Include Trade War, Gold, and Digital Money

Strains in the relationship between the U.S. and China have complicated this dynamic. The ongoing trade war — characterized by tariffs, high-tech export limitations, and shifts in supply chains — has begun to change trade patterns. According to Chinese customs data, China’s exports to the U.S. dropped by 16.9% in dollar terms during the first nine months of 2025 compared to the equivalent timeframe in 2024. At the same time, China’s total exports experienced a 6.1% growth globally. This indicates a partial decoupling. China is exploring new markets, yet the U.S. remains too significant to easily substitute. In spite of political tensions, the economic connection between these two powers continues to support demand for the dollar.

Additionally, numerous global transformations are gradually posing challenges to the dollar’s dominance. The extensive application of U.S. economic sanctions — made possible by the dollar’s pivotal role in global finance — has prompted some nations to actively pursue alternatives. This became especially obvious following the Russian invasion of Ukraine, which led the U.S. to freeze Russia’s foreign reserves and disconnect major Russian banks from the SWIFT payment network. That action highlighted the financial authority associated with dollar supremacy — but it also delivered a clear warning to other countries: overdependence on the U.S.-centered system carries political risks. Consequently, several nations have expedited initiatives to create alternative payment systems, enhance bilateral trade using local currencies, and lessen their dollar exposure in reserves.

The rise in U.S. debt — which has now surpassed $38 trillion — alongside political polarization has raised concerns regarding fiscal responsibility, encouraging some countries to diversify their currency reserves. $38 Trillion U.S. Debt: Too Big To Go Broke? For example, central banks, led by China, India, and Turkey, are gradually augmenting their gold reserves. This may be regarded as a safeguard against sanctions, inflation, and financial risks. Concurrently, the emergence of digital currencies, as well as the increasing adoption of Central Bank Digital Currencies (CBDCs) around the globe, is fostering a more multipolar monetary environment, with digital forms of the euro, yuan, and other currencies providing alternatives to dollar-denominated transactions. This digital progression could diminish dependence on intermediaries like SWIFT and challenge the conventional dollar-centric framework.

Investing Amid Uncertainty

As the global monetary landscape evolves, maintaining capital and remaining flexible may be just as crucial as striving for high returns. Consider approaches like the Trefis Reinforced Value (RV) Portfolio, which has outperformed its all-cap stocks benchmark (the combination of the S&P 500, S&P mid-cap, and Russell 2000 benchmark indices) to deliver solid returns for investors. What is the reason for this? The quarterly rebalanced blend of large-, mid-, and small-cap RV Portfolio stocks offered an adaptable response to capitalize on favorable market conditions while reducing losses when markets fall, as outlined in RV Portfolio performance metrics. In a potential scenario of a 40-60% downturn, strategies that can “limit losses when markets decline” become especially important.