The US has long followed a pattern of budgetary instability, with Republicans increasing the deficit through tax cuts for the wealthy and military spending, while Democrats cut borrowing with tax hikes and spending cuts. History is repeating itself with Donald Trump’s latest tax cut bill, which has sparked concerns about the dollar’s reserve status.
Trump’s One Big Beautiful Bill Act contains significant cuts to Medicaid and SNAP benefits, largely offset by large tax cuts primarily for the rich. The bill would increase the national debt by $3.3 trillion by 2034, with potential permanent tax cuts adding over $5.5 trillion. This pattern of Republican deficit spending is not new, but its impact may be different this time.
Trump’s erratic behavior and economic policies have created turbulence in the international economy, causing interest rates on Treasury bonds to rise modestly and the dollar’s value to fall 15% against the euro and 10% against the yen. This suggests a shift away from the dollar as a safe-haven currency.
Experts argue that a new economic order is emerging, with America’s global reserve status being questioned for the first time in decades. The US has an obligation to provide dollar assets, but its inability to do so effectively could lead to a depreciation of the dollar and widening trade deficits.
Weakening demand for the dollar due to Trump’s policies could create inflation and reduce investment. The modest decline in the dollar so far is not enough to stabilize international markets. The absence of a viable global currency benchmark means that the dollar’s dominance will continue to erode, with China or the European Union emerging as potential candidates.
The shift away from the dollar raises questions about America’s ability to maintain its position in the global economy. Trump’s policies have damaged the country’s credibility and trustworthiness, making it difficult for other nations to rely on the US as a safe haven for their investments. As a result, the world will likely see a steady erosion of the dollar’s hegemonic status, with a greater share of foreign exchange using a basket of other currencies.
Source: https://prospect.org/economy/2025-08-06-bleak-future-of-trumponomics