The overriding objective of President Donald Trump’s ‘liberation day’ tariffs — most of which remain suspended until July while the White House renegotiates trade deals with dozens of countries running trade surpluses with America — is to re-industrialise America and bring blue-collar jobs back by rebuilding its manufacturing base.

But that will not be possible for him without severely impairing — even if not completely knocking down — the very foundations that have for decades underpinned the US’s global economic dominance: the hegemony of the dollar in the international monetary system.

Herein lies the US’s Triffin dilemma, which explains the burdens of being a reserve currency issuer. It means that the US must run trade and fiscal deficits to supply global liquidity, which hollows out its manufacturing sector. If the US cuts deficits, global trade suffers due to a lack of dollar liquidity as the US is buying less from abroad, thereby impacting world growth.

In other words, countries must use the US dollar as a settlement and reserve currency to conduct international trade. And because there is demand for the dollar, countries have to stock the US currency earned through exports.

The US must run trade and fiscal deficits to supply global liquidity, which hallows out its manufacturing sector, but if the deficits decrease, global trade suffers due to a lack of dollar liquidity

On the other hand, as the US supplies dollars, if it wants to safeguard its position as the world’s dominant currency, it will have to export dollars by running a trade deficit. For so long, its currency and related financial products have........

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