What Do Tariffs Mean for Digital Assets and the Dollar’s Continued Dominance?

Journal of Financial Planning: June 2025

Ivory Johnson, CFP^®, ChFC, is the founder of Delancey Wealth Management, LLC (www.delanceywealth.com). Mr. Johnson has a B.S. in finance from Penn State University, has been certified by the Digital Asset Council for Financial Professionals, and is a member of the CNBC Financial Advisor Council.

Sun Tzu’s Art of War is a Chinese military treatise that can teach us all a few things about subduing your enemy without fighting. It preached that you should “never negotiate peacefully unless you’re prepared for battle” and “if an enemy is aggressive, a skilled strategist should capitalize on their desire for offense by making them play defense.” Our global trading partners have likely read this book, but there’s mounting evidence that Bugs Bunny has also been studied in some detail because recent events suggest that the rabbit has a gun. 

Setting the Stage for Devaluation 

Globalism is the sort of thing that sounded good at the time, a “rising tide lifts all ships” fairy tale sold to the American middle class as a magic potion for the wealth gap that was about to expand. In the wake of NAFTA (1994), U.S. trade with Mexico and Canada tripled,¹ consumer prices declined, and our companies improved efficiencies by integrating supply chains. International collaboration accelerated with the WTO (1995) as standardized shipping containers and just-in-time manufacturing allowed firms to capitalize on lower tariff barriers negotiated under these two agreements.

There was, however, an erosion of blue-collar jobs that created simmering anger and a vague demand for a reset some 30 years later, even if it was unclear what exactly should be demanded or how things would be reset. According to the book No Trade is Free by Bob Lighthizer, who served as trade representative during President Donald Trump’s first term, “between 2000 and 2016, the United States lost nearly 5 million manufacturing jobs . . . among White middle-aged adults who lack a college education, deaths from cirrhosis of the liver increased by 50 percent between 1999 and 2013, suicides increased by 78 percent, and drug/alcohol overdoses by 323 percent.” Black workers were even harder hit by offshoring manufacturing jobs because they were overrepresented in many of these industries due to historical union access and urban industrial jobs. Gil Scott-Heron warned us that dignity doesn’t show up on P&L reports when he sang, “I saw my daddy meet the mailman, and I heard the mailman say, ‘Now don’t you take this letter to heart now Jimmy, ’cause they’ve laid off nine others today,’ but he didn’t know what he was saying, he could hardly understand, that he was only talking, to pieces of a man.” 

It seems that segments of the middle class became collateral damage for stock market mania just as globalism paved the way for a K-shaped economy that was supposed to remain silent. All these years later, we are left with $36 trillion in debt, $73 trillion in unfunded liabilities,² the $4–$6 trillion invoice for two wars,³ and a series of corporate bailouts that eroded the purchasing power of consumers. This did not happen overnight; instead it is a problem child, left at the doorstep of one president after another, that has now grown into adulthood.

Nobody wants to say the quiet part out loud, but the United States will have a difficult time paying the tab. News that we spend more money on interest payments than we do on the military is not only noteworthy, but highlights the motivation to push interest rates lower by hook, crook, or a manufactured economic slowdown right before we refinance $5.3 trillion over a three-month period.⁴ We are threading the needle of reducing the value of the dollar so we can sell more products overseas, mitigate interest expenses, and undermine China’s economic prowess all in one fell swoop, albeit with a sledgehammer that increases the odds that something breaks.

Influence of Tariffs and Evolving Geopolitical Alliances

The administration’s tariff proceedings are quite the gamble with $21 trillion in U.S. debt coming due between now and 2028.⁵ During this same period, we will borrow another $9 trillion from deficit spending,⁶ which as a percentage of our economy is 25 percent larger than any other industrialized nation.⁷ Our adversaries, real, imagined, or newly minted, do not have to dump Treasuries to unsettle our markets or challenge the dollar’s role as the primary reserve currency; they can simply refrain from reinvesting. Who can blame them? Aside from a trade war, Uncle Sam has a debt-to-liquidity ratio of 1.1, a metric used to diagnose a debtor’s ability to service its obligations, that is 40 percent higher than any other developed country.⁸ This predicament, wedged between a rock and rising expenses, explains why the United States has gambled the dollar dominance as if it were something that could be returned after seven years of filing for bankruptcy or, worse yet, repurchased at an IMF pawn shop. 

Truth be told, we can’t afford to defend the world any more than we can absorb higher borrowing costs. The dominance of the dollar, however, comes with significant advantages that include the ability to sanction bad actors. When Japan trades with India, they must convert yen to dollars and use those dollars to buy rupees on the foreign exchange market. The dollar serves as a weigh station even in a transaction that doesn’t involve an American firm. Edward Fishman explained in Chokepoints: American Power in the Age of Economic Warfare that the infrastructure undergirding the world economy facilitating cross-border transactions are either American or follow U.S. law. Locking Iran out of the dollar market, for instance, made global trade difficult, akin to traveling the world without a passport, and allowed America to secure the nuclear deal without firing a shot.

These sanctions are only possible with the help of our allies who were often threatened with secondary sanctions that aimed a barrel full of economic ammunition at their own heads if they did not toe the American line. This meant that private companies were forced to forego lucrative contracts with whatever country we considered dangerous to American interests. The United States has spent a considerable amount of political capital weaponizing the U.S. dollar against Iran, China, and Russia with mixed results. Other countries may begin to ask themselves of the United States: “if they can do it to them, they could do it to us.” Lo and behold, a preemptive trade war unfolds.

The newly implemented tariffs are being described by some as a negotiating tactic. It’s hard to argue that our allies pay their fair share for military protection or that foreign markets are as open to our companies as our market is to theirs, but it sure is nice to have the primary reserve currency status that allows us to accumulate the debts that we have at the pace that we do with a mountain of unfunded liabilities sitting on our balance sheet like Humpty Dumpty trying to maintain his equilibrium.

The mere suggestion of another currency becoming the primary reserve seems farfetched with 90 percent of all transactions being settled with the U.S. dollar,⁹ 70 percent of international bonds denominated in the greenback,¹⁰ and 57 percent of all central banks using dollar-denominated holdings as a reserve asset.¹¹ This institutional adoption has always been perceived as impenetrable to change, at least until markets recently saw the dollar decline and treasury rates increase when investors shunned treasury bonds as a safe haven and fled to gold.

There might be several explanations for a shift that include a dollar shortage that forced central banks to create liquidity, the unwinding of leveraged basis trades, and an Asian counterpart selling Treasuries to send a message.¹² Be that as it may, the rabbit not only has a gun, but it is keenly aware that the United States doesn’t want to get shot. Make no mistake about it, their gun might not be as big as ours, but those bullets would still hurt.

Dollar Diversification

The matter at hand is more about diversifying away from the dollar than it is an abandonment. First, it has already begun—central bank holdings of Treasuries have declined from 71 percent in 4th quarter of 1999 to 54 percent in the 4th quarter of 2024.¹³  It’s also worth mentioning that the IMF has already approved four other vehicles as reserve currencies: the yen, yuan, euro, and pound.

Why would investors diversify their dollar holdings in the first place? Financial distress and the loss of a store of value would motivate central banks and foreign investors to find an alternative to the dollar. Due to the Fed’s helicopter parent policies, $1,000 in 1913 would only buy $31.30 of goods and services today,¹⁴ the sort of thing that happens when 70 percent of U.S. dollars currently in circulation have been created in the last 20 years.¹⁵  It’s no wonder why gold holdings are the highest they’ve been since WWII.¹⁶ This speaks to the absurd levels of money printing, unchecked deficit spending, and the monetization of our debt.

Geopolitical shifts would push the capital markets toward de-dollarization if rival powers emerged, new alliances were formed, or there was a perceived U.S. sanction overreach. China’s economy has grown 11-fold since joining the WTO¹⁷ and the BRICS have invited Iran and Saudi Arabia to the table.¹⁸ Similarly, Europe and China have exchanged views on strengthening their economic and trade cooperation¹⁹ while China, Japan, and South Korea have recently discussed trade issues amid three-way talks,²⁰ something that was once considered unimaginable. The tariffs have not only splintered the geopolitical order, but potentially aligned allies with a China we spent years trying to isolate.

The demand for dollars would also decline if major oil producers began selling oil in other currencies. It was a bit disconcerting, therefore, when China sold $2 billion in dollar-denominated bonds in Saudi Arabia,²¹ the birthplace of the petro dollar, as opposed to London or New York. In fact, the issue was so oversubscribed that they were able to borrow the dollars at one to three basis points higher than what we would pay and served as an unfriendly reminder that when push comes to shove, the United States might no longer be the sole gatekeeper of its own currency. 

These events, coupled with our mounting debt, have led to speculation about whether foreign central banks would accelerate the diversification of their balance sheets and what instruments would be used to circumvent the dollar for international transactions. This is not a matter of Chicken Little staring at the clouds after one too many cocktails. Larry Fink, CEO of BlackRock, warns that “America’s rising national debt could threaten the dollar’s status as the world’s reserve currency, potentially leading to decentralized assets like Bitcoin taking its place.”²² Bridgewater’s Ray Dalio cautions that “if the United States fails to manage its debt, global confidence in U.S. Treasuries may collapse, triggering economic instability and a shift toward alternative financial systems.”

What Digital Assets Mean for the Dollar 

Digital assets have the potential to gradually erode the U.S. dollar’s dominance in global trade and finance by providing alternative methods of settlement and value storage that bypass traditional dollar-base systems. The pursuit of a credible alternative that doesn’t compromise the store of value, rule of law, fiscal discipline, political stability, or sanction overreach could be a sight for our trading partner’s black eye. 

One of the most prominent tools in this shift is the stablecoin, which is a type of digital asset designed to maintain a stable value by being pegged to a reserve asset, typically a fiat currency like the U.S. dollar that is widely used in cryptocurrency markets for trading and cross-border payments. While the most prominent stablecoins are currently pegged to the U.S. dollar, the same concept can be applied to stablecoins backed by other currencies or commodities, such as gold, oil, or even a basket of BRICS currencies. These digital instruments can be used to settle international trade, providing real-time, low-cost transactions that do not require clearing through the U.S. banking system or SWIFT network.

As more countries seek to reduce their reliance on the dollar, commodity-backed or multi-currency stablecoins could serve as a neutral medium of exchange. For example, a BRICS-backed stablecoin might be tied to a mix of gold, oil, the Chinese yuan, and the Indian rupee, offering a credible alternative to the dollar for international trade settlements. These digital currencies could run on decentralized or consortium blockchains, allowing countries to settle transactions directly with each other without converting to dollars or relying on dollar-dominated financial infrastructure.

Bitcoin also represents a unique threat to the dollar hegemon, not as a medium of exchange for daily trade, but as a neutral, decentralized reserve asset similar to digital gold. Unlike fiat currencies or even stablecoins, bitcoin is not issued by any government, making it attractive to countries or institutions looking to hedge against currency debasement or geopolitical risk. Some countries already hold bitcoin in their reserves, and as more central banks diversify away from the dollar, bitcoin could gain traction as a digital asset of last resort. This transition would likely unfold over a decade or more, as adoption grows, volatility declines, and financial institutions build infrastructure around it.

All of this requires trust in non-dollar systems that must be built, particularly when it comes to the credibility of backing mechanisms (e.g., whether a commodity-backed stablecoin is truly redeemable for the underlying asset). The idea that alternative markets have the liquidity of the dollar is debatable. Moreover, rival nations must cooperate economically and technologically to establish shared financial rails, which is challenging due to geopolitical tensions. From the United States side, efforts to slow this erosion would likely include a mix of regulation and innovation: cracking down on non-compliant stablecoins, accelerating the development of a digital dollar, and incentivizing allies to stick with dollar-based systems. The United States may also strengthen alliances and trade agreements that reinforce dollar usage while using its influence over global institutions like the IMF and World Bank to discourage alternatives.

Ultimately, the erosion of dollar dominance through digital assets is not likely to be sudden or absolute, but rather a gradual shift toward a multipolar financial system. In this emerging landscape, the dollar may remain dominant but not unrivaled as digital assets open the door to alternative systems of value and exchange that operate outside the traditional monetary order. 

That tail on this bell curve is stretching its limbs and might just be the thing that finally wags the dog. Investors should act accordingly. Betting the farm on crypto is one thing; hedging against the backlash of heavy-handed sanctions, a trade war, and the fiscal incompetence of Uncle Sam is quite another. The camel’s back is tired, and when you weigh all the competing equities, one thing seems clear: something isn’t everything, but everything is something. 

Endnotes

1. Chatzky, Andrew, James McBride, and Mohammed Aly Sergie. 2020. “NAFTA and the USMCA: Weighing the Impact of North American Trade.” Council on Foreign Relations. www.cfr.org/backgrounder/naftas-economic-impact.
2. Boccia, Romina. 2024, March 20. “Medicare and Social Security Are Responsible for 100 Percent of US Unfunded Obligations.” CATO Institute. www.cato.org/blog/medicare-social-security-are-responsible-100-percent-us-unfunded-obligations.
3. Bilmes, Linda. 2013, March. “The Financial Legacy of Iraq and Afghanistan: How Wartime Spending Decisions Will Constrain Future National Security Budgets.” Harvard Kennedy School. www.hks.harvard.edu/publications/financial-legacy-iraq-and-afghanistan-how-wartime-spending-decisions-will-constrain.
4. 42 Macro analysis of data from U.S. Treasury’s Monthly Statement of the Public Debt.
5. Ibid.
6. Congressional Budget Office. 2025, January 1. “The Budget and Economic Outlook: 2025 to 2035.” www.cbo.gov/publication/61172.
7. 41 Macro analysis of Bloomberg data.
8. Ibid
9. Fishman, Edward. 2025. Chokepoints: American Power in the Age of Economic Warfare. Penguin Random House.
10. Bertaut, Carol, Bastian Von Beschwitz, and Stephanie Curcuru. 2023, June 23. “‘The International Role of the U.S. Dollar’ Post-COVID Edition.” www.federalreserve.gov/econres/notes/feds-notes/the-international-role-of-the-us-dollar-post-covid-edition-20230623.html.
11. Arslanalp, Serkan, Barry Eichengreen, and Chima Simpson-Bell. 2024. “Dollar Dominance in the International Reserve System: An Update.” IMF. www.imf.org/en/Blogs/Articles/2024/06/11/dollar-dominance-in-the-international-reserve-system-an-update.
12. Shan, Lee Ying. 2025, April 16. “Trump Tariffs Drove a Treasury Sell-off—Who Sold the Safe-haven Asset?” CNBC. www.cnbc.com/2025/04/15/us-treasurys-selloff-what-happened-and-why.html.
13. Arslanalp et al. 2024.
14. Bureau of Labor Statistics
15. Federal Reserve
16. Arslanalp et al. 2024.
17. World Trade Organization. n.d. “High-Level Forum Marks 20 Years of China’s WTO Membership.” www.wto.org/english/news_e/news21_e/acc_10dec21_e.htm.
18. Iordache, Ruxandra. 2023, August 24. “Emerging Economies Group BRICS Invites 6 New Members, Including Saudi Arabia and Iran.” CNBC. www.cnbc.com/2023/08/24/emerging-markets-group-brics-invites-6-new-members-including-saudi-arabia-and-iran.html.
19. Lee, Liz, and Qiaoyi Li. 2025, April 9. “China and EU Discuss Trade in Response to U.S.’ Punitive Tariffs.” Reuters. www.reuters.com/markets/china-eu-discuss-trade-resume-ev-talks-2025-04-10/.
20. Wall Street Journal. 2025, April 1. “China Says It Is Aiming to Coordinate Tariff Response with Japan, South Korea.” www.wsj.com/economy/china-says-it-is-aiming-to-coordinate-tariff-response-with-japan-south-korea-c7a19540. McCartney, Micah. 2024. “How China Could Weaken the US Dollar.” Newsweek. www.newsweek.com/china-news-weaken-us-dollar-bonds-1989924.
21. Pringle, Eleanor. 2025, April 1. “Larry Fink Says Bitcoin Could Replace the Dollar as the World’s Reserve Currency Because of National Debt.” Yahoo Finance. https://finance.yahoo.com/news/larry-fink-says-bitcoin-could-143408609.html.