Tariff moves may chip away at dollar strength but won’t overturn reserve role soon

New research and market commentary surfaced on Sept. 25 suggesting that rising tariffs, while material, are unlikely to immediately unseat the U.S. dollar’s central position as the world’s primary reserve currency. Economists point out that tariffs change trade patterns and can reduce dollar demand in some corridors — for example, by shifting purchases away from U.S. suppliers — but the dollar’s deep, liquid capital markets and entrenched use in global contracts and reserves underpin a durable advantage.
The study highlighted that even substantial tariff regimes produce gradual adjustments rather than sudden reversals. Global central banks and institutional investors value dollar-denominated safe assets and the breadth of U.S. capital markets. While localized effects — such as a shift toward alternative suppliers or invoicing currencies in bilateral trade — can emerge, they have yet to create a systemic threat to the dollar’s reserve status. Market participants have nonetheless noted that tariffs add to long-run uncertainty and may accelerate diversification strategies by some sovereign holders.
At the same time, trade frictions can feed into broader price dynamics, potentially complicating central bank objectives. For the United States, higher import costs in certain sectors could contribute to domestic inflation pressures, albeit unevenly. That, in turn, could affect Fed policy deliberations if tariff-driven price moves prove persistent rather than transitory.
Policy-wise, tariffs are an instrument with clear distributional effects, but currency reserve status is anchored in deep institutional features — debt markets, rule of law, and invoice currency norms. Expect gradual, not instantaneous, currency shifts; the practical obstacles to quick diversification (market depth, hedging costs, existing contract structures) favor a slow evolution. Investors should therefore monitor where reserve managers and central banks modestly increase non-dollar holdings, which would signal a longer-term reallocation trend rather than a sudden regime change.
For portfolio strategy, tariffs raise the odds of localized sectoral inflation (e.g., appliances, autos, agriculture) that can surprise market inflation expectations. In such an environment, tilting exposures toward quality cash flows and global firms with pricing power can help preserve real returns while central bank guidance remains data-dependent.