Al-Shhoumi Writes: “The Use of the Dollar as a Weapon, Imposing Tariffs, and Their Impact on the Future of American Hegemony”

The investment expert and capital fund manager in the United Kingdom, Mondher Al-Shhoumi, wrote an article titled: “The Use of the Dollar as a Weapon, Imposing Tariffs, and Their Impact on the Future of American Hegemony.“

For decades, the United States has been the cornerstone of the global economic system, benefiting from the dominance of the US dollar and its leadership in the multilateral trading system. However, in recent years, it has begun to wield its economic power as a geopolitical weapon in unprecedented ways — from freezing foreign currency reserves of adversaries to imposing punitive tariffs on both trade partners and foes alike. These moves have highlighted the extent of American influence, but they have also raised serious questions about their long-term consequences. Could using the dollar as a weapon, along with a growing inclination toward tariffs, undermine the very foundations of American global dominance that Washington laid after World War II?

The Dollar as a Weapon

Since the end of World War II, the US dollar has been the dominant global currency in trade and finance. Today, it accounts for around 60% of the declared foreign currency reserves held by central banks worldwide, despite the US economy making up only about a quarter of global output. The dollar is involved in nearly 90% of all foreign exchange transactions globally, making it the preferred and trusted medium for trade and finance. This unique position has given the US what economists call an “exorbitant privilege” — the ability to borrow and spend internationally in its own currency with relatively low risk, along with massive political and economic influence thanks to its access to the global financial system.

However, the US has recently begun to use this financial strength as leverage to achieve foreign policy goals. This was starkly demonstrated by the freezing of Russia’s foreign reserves abroad in 2022 — the boldest use of the dollar as a weapon to date. Around $300 billion of Russia’s reserves were blocked in response to its war on Ukraine, alongside similar — though smaller — actions previously taken against Iran, Libya, Venezuela, and Afghanistan. From Washington’s perspective, these financial sanctions are powerful tools to punish adversaries and deter defiance. But for other nations, this trend sends an alarming signal: if America can paralyze any country’s access to the dollar and the financial system, is it safe to keep depending so heavily on the US currency?

This question has accelerated the global debate around de-dollarization. After Russia’s reserves were frozen, even some US allies realized they could be vulnerable if their policies diverged from Washington’s. As a result, multiple international actors began seeking alternatives. For example, China and Russia have increased trade in their national currencies. By mid-2024, about 27% of China’s foreign trade was denominated in the renminbi (yuan), up from just 17% in early 2022 — largely because China and its ally Russia began settling their bilateral trade in yuan instead of dollars.

In Europe, concerns about US dominance in payment systems have sparked local alternatives. The European Central Bank has warned about the risk of “economic pressure and coercion” due to American card networks (like Visa and Mastercard) controlling most payments. This has driven efforts to launch a digital euro to boost Europe’s financial independence. While this project is still in development and likely years away from implementation, its mere proposal reflects a growing desire to build financial systems less dependent on the US.

Still, viable alternatives to the dollar remain limited in the near term. No other currency comes close to matching the dollar’s global role. For example, China’s yuan accounts for only around 2% of global reserves. Additionally, most major economies — including US allies like Japan and the EU — have participated in recent rounds of sanctions (such as those against Russia), meaning switching to those currencies doesn’t fully shield against Western sanctions. There’s also the matter of network effects: the more the dollar is used, the harder it is to replace, and the costlier it becomes to build a global alternative.

Thus, financial analysts emphasize that any substantial decline in the dollar’s dominance will take a long time. Despite increasing calls for reserve diversification, the foundations supporting the dollar remain deeply embedded in the global economic and financial structure. In other words, the dollar may be a double-edged sword for America: while its weaponization may gradually drive others to find ways around it, the dollar’s entrenched role still gives Washington wide strategic leeway that could last for decades.

Tariffs as a Weapon

In addition to its financial influence, the US also possesses significant trade power, which it has recently used through broad tariffs to achieve political and economic goals. Departing from its traditional support of free trade, Washington imposed unilateral tariffs on several countries and trade partners in the late 2010s. The most notable example was the trade war with China that began in 2018, when the US imposed 25% tariffs on roughly $250 billion worth of Chinese imports, later expanding the scope to include another $300 billion in goods. China retaliated with its own tariffs on American imports.

This became the biggest trade conflict in decades, disrupting global supply chains and shaking financial markets due to the uncertainty and added costs imposed on businesses and consumers.

Tariff policies didn’t stop at strategic adversaries like China. They also targeted traditional allies: the US imposed tariffs on steel and aluminum imports from the EU, Canada, and Mexico, citing security and trade concerns. This unilateral approach angered allies, who saw it as a betrayal of the multilateral trade system that the US had helped create. Some European countries considered retaliatory tariffs and even more drastic measures like restricting American banks operating in Europe. These escalatory steps were never implemented, partly due to Wall Street’s global clout and European fears of damaging their own economies. Still, the fact that allies even considered such defensive actions highlights the extent of the rift that tariff policies have caused in trust between the US and its partners.

Domestically, US proponents of tariffs argue they are necessary to protect jobs and industries from unfair competition and to counter trade practices seen as market-distorting (like IP theft or dumping). Some view tariffs as a negotiating tool to pressure rivals into concessions. However, most economists doubt that tariffs effectively achieve these stated goals. For instance, the US trade deficit did not shrink significantly as a result of the tariffs, as it is shaped more by structural factors in the US economy (like savings and investment gaps) than by tariffs alone.

Experts warn that protectionist barriers could backfire. If tariffs fail to reduce the trade deficit — a scenario many economists see as likely — they could harm the US economy without achieving their purpose. Indeed, after tariffs were imposed, the US saw an increase in import costs for average consumers, effectively acting as a hidden tax on household spending. American companies that rely on imported components also faced pressure to raise prices or accept lower profit margins.

Moreover, confrontational tariffs could have long-term geopolitical consequences. Overusing protectionist tools risks weakening America’s leadership in shaping global trade rules. When the US bypasses institutions like the World Trade Organization (WTO) and enforces unilateral measures, other countries may lose confidence in the international trade system and look for alternative arrangements. This is already happening, with some nations forming massive regional trade agreements that exclude the US, such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which moved forward without Washington’s participation. As US influence in trade agenda-setting declines, other countries are stepping in to fill the gap and steer globalization in ways that suit their interests.

Implications for the Future of American Hegemony

Recent US actions reflect a blend of power projection and strategic gambling with the fruits of its dominance. On one hand, Washington has demonstrated its influence by showing it can twist the arm of even a major economy by denying access to dollars and American markets. On the other hand, these policies have raised the specter of global mistrust in US leadership. American hegemony since WWII has relied not just on hard power, but also on a vast network of alliances and the willingness of other nations — even allies — to accept the US as the guarantor of an open global economic system. If those countries begin to view the US as a player willing to weaponize the rules of the system against them during disputes, they will naturally seek to reduce their exposure to financial and trade dominance.

In the short term, this dissatisfaction may not lead to an immediate collapse of the dollar’s status or the unraveling of trade alliances. The US still holds a uniquely unmatched position for now…