The writer is a senior associate of the Carnegie Endowment for International Peace
There has been justified concern this month that the chaos unleashed on financial markets around the world by the Trump administration’s “liberation day” tariffs may ultimately undermine the global credibility of the US dollar. But this should not divert attention from a more serious discussion about how the global role of the dollar affects the American economy.
Maintaining the dollar’s role as the dominant “safe” currency requires that the US economy accommodate what economist Dani Rodrik has characterised as an inherent contradiction between global integration and national sovereignty. He notes that countries that choose more global integration must relinquish control over their domestic economies, whereas countries that choose to retain domestic control must limit the extent to which their economies are open to trade and capital flows.