[The Viewpoint of Dongki Kim] Will Trump Become America's Trojan Horse?

Possibility of a Crisis in the U.S. Treasury Market
Fed Intervention Is the Only Path to Restoring Stability
Frequent Trump Interference Could Be an Obstacle

The world has been thrown into turmoil by Donald Trump's unilateral use of tariffs as a weapon. For those hoping for the decline of the United States, and especially the fall of the dollar, Trump appears to be a Trojan horse. But will the end of dollar hegemony truly become a reality?

Some argue that the fall of the dollar is inevitable, but there are also forces that serve to strengthen its status. First, there is the network effect: as the number of dollar users increases, the value of the dollar rises. Every time oil is traded in dollars, every time a new loan is issued in dollars, and every time dollar-denominated derivatives are traded, the forces sustaining dollar hegemony are reinforced. The euro and the renminbi (yuan) are not as widely accepted as the dollar. Moreover, neither Europe nor China possesses a financial market that matches the size, openness, depth, and sophistication of the U.S. financial market.

The aspect of holding dollar assets should not be overlooked. According to the U.S. Bureau of Economic Analysis (BEA), the U.S. net international investment position (external assets minus external liabilities) stood at minus $24.61 trillion in the first quarter of 2025. This position declined by about 40% between 2010 and 2021. The main reason for this was the significant inflow of foreign investment driven by the remarkable rise in U.S. stock prices during this period. Foreign investors now own about 30% of U.S. corporate stocks. The profits earned by foreigners from U.S. stocks and other financial assets have far exceeded the gains the U.S. has made from its external assets.

The relative strength of U.S. stocks over the past decade appears to be due to increased market power and profitability of American companies. The influx of foreign investors into the U.S. stock market was not because of U.S. military power, nor because the United States is a provider of 'safe assets.' Rather, it is because investing in the U.S. has offered higher returns.

In the 2000s, China's rise led to an increase in China's holdings of dollar assets, which became a geopolitical issue. However, during the 2010s, economic ties between the U.S. and China weakened. Instead, a new group of creditor nations emerged?comprising advanced countries in Europe and Asia friendly to the U.S., as well as oil-producing countries in the Middle East?who came to hold large amounts of U.S. assets. This was a voluntary choice made in pursuit of profit. If the value of the dollar falls, U.S. export competitiveness increases and U.S. assets become cheaper to purchase. However, investors who already hold U.S. assets would suffer losses. With foreign investors holding as much as $24.61 trillion in U.S. assets, wouldn't they prefer a strong dollar?

Meanwhile, according to the '2025 Annual Economic Report' published by the Bank for International Settlements (BIS) in June, the role of non-bank financial institutions such as hedge funds, investment funds, pension funds, and asset management companies has grown since the 2008 financial crisis. Assets managed by private funds have risen from about $200 million in the early 2000s to over $2.5 trillion in 2024. Over the past decade, foreign private investors have significantly increased their holdings of U.S. Treasury bonds. The highly complex transactions conducted by these investors can lead to market instability, such as the panic in the U.S. Treasury market in March 2020.

The liquidity of the U.S. Treasury market is the foundation of global financial markets. If a crisis occurs in this market, the only way to restore stability is for the Federal Reserve (Fed) to intervene directly. However, the more Trump intervenes in the activities of the Fed, the less likely it is that the Fed will be able to fulfill its role in a timely manner. If market trust in the Fed collapses, anxiety in the Treasury market could intensify. For this reason, the independence of the Fed is more important for maintaining the dollar's status than the presidency itself. The more Trump's aggressive actions undermine the stability of U.S. financial markets, damage corporate profitability, and weaken the Fed's autonomy, the more likely he is to become a Trojan horse.

Kim Dongki, author of 'The Power of the Dollar' and attorney