US on the horns of a dollar dilemma

US President Donald Trump has threatened to impose substantial tariffs on imports from the United States' major trading partners to, what he claims, correct the trade imbalance with them. At the same time, he has vowed to preserve the dollar's status as the global reserve currency, threatening to impose 100 percent tariffs on imports from BRICS countries, which he alleges pose a challenge to the US' dominance in the global financial sector.

But his strategy is paradoxical, economically speaking, because the very strength of the dollar as the global reserve currency is based on expanding US trade deficit. Any attempt to artificially balance the US' trade through aggressive tariffs will only increase the financial pressure on US consumers, lead to inflation and constrict the dollar's use in global trade and financial markets. It will also diminish the dollar reserves held by other countries, undermining the greenback's status as the primary global currency.

The Bretton Woods system, established after the end of World War II, laid the foundation of the international monetary order, cementing the US dollar's role as the global reserve currency. Over the decades, the dollar's dominance as the world's reserve currency has been intrinsically tied to the US' perpetual trade deficit. Hence, far from being a weakness, the trade deficit is a necessity for the dollar to maintain its hegemonic status.