The standard textbook viewpoint implied that the imposition of tariffs by the U.S. would lead to a strengthening of the American dollar against the currencies of its major trading partners. Since tariffs make imports more expensive, they can potentially reduce the volume of imports and thus create less demand for foreign currencies to pay for them.

Tariffs can also lead to higher domestic prices and possibly generate an increase in short-term inflation expectations. Consequently, the Federal Reserve would be expected to maintain a tighter monetary policy relative to other major central banks, which is usually a dollar-positive outcome.

Furthermore, given the U.S. dollar’s status as a safe-haven currency, one would have expected that periods of heightened global uncertainty would generate a ‘flight-to-safety’ investment flow into Treasury securities and caused a strengthening of the world’s pre-eminent reserve currency.

Yet reality has turned out to be quite different. Since its recent peak in January, the widely followed DXY dollar index has fallen quickly to a three-year low. Even as President Trump’s chaotic tariff policy has raised the risk of a global trade war and generated a dramatic surge in global policy uncertainty and market volatility, the U.S. dollar has weakened.

For the first time in recent memory, the American dollar is not the automatic “flight-to-safety” currency, sought out by investors worldwide during crisis periods and in moments of acute uncertainty. Furthermore, foreign investors appear to be reappraising the role of U.S. Treasury securities as a global haven asset as concerns mount over the capricious and somewhat autocratic nature of Trump’s policymaking. Threats to academic freedom, rule of law and

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