Tariffs, Sanctions, Dollar Risk

Washington’s use of tariffs and sanctions is colliding with a second U.S. goal: keeping the dollar at the center of global trade and finance. (congress.gov) That tension is now explicit in Congress. House bill H.R. 5136, the Dollar Dominance Act of 2025, was introduced on September 4, 2025, by Rep. Warren Davidson and would create a State Department Office of Strategic Currency Diplomacy to “combat” efforts to weaken the dollar’s reserve-currency role. (congress.gov) The bill also says U.S. sanctions policy should be aligned with “national monetary security,” a sign that lawmakers are treating dollar power as a strategic asset that can be protected or eroded by policy choices. (congress.gov) Sanctions work because so much global trade, borrowing, and payments still run through dollars and dollar-clearing banks. The Treasury Department’s Office of Foreign Assets Control says it uses asset freezes and trade restrictions to pursue U.S. foreign-policy and national-security goals. (ofac.treasury.gov) The argument over blowback starts there. In June 2023 testimony to the House Financial Services Committee, Syracuse University professor Daniel McDowell said heavier U.S. reliance on financial sanctions had “provoked anti-dollar policy responses” from adversaries and could, over time, weaken the coercive power that comes from dollar centrality. (docs.house.gov) International Monetary Fund researchers have described a slower version of the same shift. In a June 11, 2024, update, they said the dollar’s share of allocated foreign-exchange reserves had been declining gradually for two decades, with gains going less to the euro and more to a mix of “nontraditional” currencies including the Canadian dollar, Australian dollar, won, and renminbi. (imf.org) The Federal Reserve’s 2025 edition of its dollar report shows why the debate is not about imminent collapse. It said the dollar’s international use was “little changed” over the prior five years and still far exceeded the U.S. share of global gross domestic product and trade; it also put the dollar at about 55% of international and foreign-currency bank claims and 60% of liabilities. (federalreserve.gov) The Bank for International Settlements has framed the wider backdrop as fragmentation. Its 2025 Annual Economic Report said trade tensions, tariff surprises, and the risk of separate financial blocs are now central policy problems for the global economy. (bis.org) Recent U.S. policy has used both tools at once. A January 2026 Center for a New American Security review said the Trump administration in 2025 continued to rely on financial sanctions and export controls while also making “extensive use” of tariffs, even as sanctions shifted away from Russia and toward Iran, China-linked evasion networks, cybercrime, and drug trafficking. (cnas.org) Supporters of sanctions say that is the point: coercive finance can raise the cost of war, proliferation, and sanctions evasion without direct military force. Critics answer that repeated use gives targeted states a reason to build payment channels, reserve portfolios, and trade invoicing systems that bypass the dollar. (ofac.treasury.gov, docs.house.gov) That shift is already visible in some sanctioned corridors. At the 11th Russia-China Financial Dialogue in Beijing in late 2025, Russian officials said more than 99% of Russia-China trade settlements were being conducted in rubles and yuan rather than Western currencies. (aa.com.tr) The thread running through the current debate is narrower than “the dollar is finished” and broader than any one bill. Washington is trying to preserve a currency system that still dominates global finance while using tariffs and sanctions that can give rivals a reason to build around it. (congress.gov, federalreserve.gov)