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Published : 03 Aug 2025, 03:49 PM
Europe and Asia could leverage US President Donald Trump’s "America First" strategy for their own benefit, eventually spurring the development of regional tripolar FX blocs that could erode the dominance of the US dollar and reshape global markets.
The dollar has struggled this year, especially since Trump’s Apr 2 tariff announcement. While the currency is on pace for one of its strongest weeks this year after jumping around 1 percent on Monday following the announcement of US-EU trade deal, this short-term move doesn't change the long-term trends that could undermine the greenback's position.
MOVING IN REVERSE
Economic dominance in the future could largely depend on access to affordable, efficient energy to power artificial intelligence technologies. And in the race to dominate the industries of the future, the US is arguably going in reverse.
It's retreating from the renewables space, as seen in the administration's recent move to eliminate many clean energy subsidies. The president appears to be making the bet that the US can maintain energy dominance indefinitely by relying on its own fossil fuel resources.
This could ultimately result in uncompetitive power costs in the future, especially given that China is already dominating in clean energy technologies like solar and electric vehicles.
As historian Adam Tooze argues, "for the first time in two centuries the West is no longer the leader in future technologies but the follower."
TWIN DEFICITS
While Trump may be seeking to enhance American self-sufficiency, the administration's policies may actually be increasing the country's dependency on foreign capital.
Trump's recently passed budget bill – which looks pretty ugly to fiscal watchdogs despite its name – could cement the US’s position as the world's biggest capital importer by adding an expected $3.4 trillion to the US deficit over the next decade, according to estimates by the nonpartisan Congressional Budget Office, potentially locking in 6 percent to 7 percent budget deficits for years.
Importantly, the US has also been running current account deficits of roughly 4 percent over the past several years, and this widened to 6 percent of GDP in Q1 2025, according to the US Bureau of Economic Analysis.
By spending beyond its means and running these twin deficits, the US will continue to require large amounts of foreign capital inflows.
But unfortunately for Washington, this capital may soon be harder to come by, if both Europe and Asia seek to keep more of it closer to home.
Europe is pushing for increased defense spending, as seen in its new goal to spend 5 percent of GDP on defense in the coming decade. While the bloc has agreed to increase US energy purchases through the recently announced US trade deal, much of that agreement remains up in the air and the volumes suggested are pretty unrealistic. Meanwhile, Asia has begun to trade more internally, as China has been focusing on export diversification.
TRI-POLAR FX BLOCS
A growing regionalization of supply chains began during the pandemic and appears to be accelerating as Trump seeks to drive production back to the US and all major global powers focus on securing regional raw material access (e.g., rare earths and other critical minerals) for national security purposes.
This shift could eventually create the foundation for true regional FX blocs across Asia, Europe and the Americas.
This development would have a major impact on the global economy, currency values and capital markets, arguably providing a more balanced global economy with three poles of supply and demand, each attuned to their own regional dynamics rather than the current set-up whereby the global economy responds primarily to the Federal Reserve and US internal dynamics.
[Jay Pelosky is the founder and global strategist at TPW Advisory, a NYC-based investment advisory firm]
