Will Trump kill the dollar?

If you look at the absolute size of major economies, the US remains easily the world’s largest. According to the IMF, by the end of 2025 it will be worth around $30tn, and China – its nearest nation state competitor – will be worth around $20tn. The US is more than six times larger than the next biggest “western”-style economies, Germany and Japan, and its share of the total G7 has risen to more than 50%, so that it now makes up 25% of global GDP. Moreover, China is not as close to overtaking the US as people believed – me included – some 20 years or so ago.

The wealth of individual US citizens is arguably a more important measure of how people really feel, and as measured by GDP per capita the US also looks rather good. By the end of 2025, the average US citizen will be worth nearly $90,000. That makes the average US citizen the 10th wealthiest in the world.

But all the other nations ranked above it are tiny. In countries with more than 50 million people, the average German citizen is worth around $70,000, the average Japanese person $53,000. For the US to achieve this level of average wealth, given that it has more than 300 million inhabitants, is remarkable. Even if China becomes the largest economy overall in the next decade or so, on average its people will still be poorer than Americans.

And yet… if you look at the distribution of American wealth, rather than the mean average, you begin to see alarming levels of inequality. Other important US statistics, particularly life expectancy, are not so great. Trump doesn’t seem interested in those problems.

Instead, he wants to “Make America Great Again” by focusing on tax cuts at a time of already substantial fiscal deficits, relatively full unemployment, and persistent inflation. This is highly risky – it could drive inflation skywards. His policy of applying tariffs in order to reduce the US trade deficit, in the hope that foreign imports will be replaced by US-produced goods, is also highly dubious.

Far from strengthening the dollar, the opposite may happen. Trump’s flamboyant and sometimes alarming style of leadership could bring about the end of the dollar’s period of dominance, and its role as the global reserve currency.

In addition to the pursuit of economic policies that are widely viewed as counterproductive, Trump is attacking global institutions such as the WHO and the ICC, and is sceptical of the World Bank and International Monetary Fund. By taking an aggressive stance, towards not only the US’s adversaries but also its allies and the institutions on which his allies depend, he is actively encouraging other countries to pursue ideas that he won’t like.

Within Europe, for example, Germany has remained opposed to the idea of euro bonds. But with all the volatility that Trump brings, the euro might well become viewed as safer than the dollar. Euro bonds would seem to me a rational step for Germany to consider.

As for the so-called BRICs nations (I created that acronym back in 2001), that group of Brazil, Russia, India and China has failed to contribute much more to the world. The reason is that its two most important members, China and India, have spent most of their time fighting and little time collaborating. If that were to change, and if the two huge economies of Asia were to forge closer economic relations, then the prospect of a serious alternative to the dominance of a US-led global financial system would be more likely.

A realignment of this kind would cause a surge in global trade – but a Trump US would miss out on it. In this scenario, the significance of US decisions on economic policy would decrease.

The most significant consequence of this would be a fall in the value of the dollar. That alone would take us much closer to the day when the US was no longer the biggest economy in the world. And it will have been Trump’s fault.

Jim O’Neill is former head of global economics at Goldman Sachs, chairman of Chatham House and commercial secretary to the Treasury