Dollar at risk of being left behind

Europe and Asia could leverage US President Donald Trump's “America First” strategy for their own benefit, eventually spurring the development of regional tripolar FX blocs that could erode the dominance of the US dollar and reshape global markets.

- Jay Pelosky

The dollar has struggled this year, especially since Mr Trump's April 2 tariff announcement. While the currency is on pace for one of its strongest weeks this year after jumping about 1% on July 28 following the announcement of US-EU trade deal, this short-term move doesn’t change the long-term trends that could undermine the greenback’s position.

MOVING IN REVERSE

Economic dominance in the future could largely depend on access to affordable, efficient energy to power artificial intelligence technologies. And in the race to dominate the industries of the future, the US is arguably going in reverse.

It’s retreating from the renewables space, as seen in the administration’s recent move to eliminate many clean energy subsidies. The president appears to be making the bet that the US can maintain energy dominance indefinitely by relying on its own fossil fuel resources.

This could ultimately result in uncompetitive power costs in the future, especially given that China is already dominating in clean energy technologies like solar and electric vehicles.

As historian Adam Tooze argues, “for the first time in two centuries the West is no longer the leader in future technologies but the follower”.

TWIN DEFICITS

While Mr Trump may be seeking to enhance American self-sufficiency, the administration's policies may actually be increasing the country’s dependency on foreign capital.