Trade War Monitor, Sept. 8: The Dollar Dives, a New Reality Dawns

The first half of 2025 has proven highly challenging for the U.S. dollar, which has suffered what many analysts describe as its “worst six months in modern history.” The primary causes are President Donald Trump’s renewed focus on imposing "reciprocal tariffs" and a growing crisis of confidence in the U.S. government's fiscal discipline and the Federal Reserve's independence. This instability has led to a significant depreciation of the dollar against other major currencies, such as the euro, pound, and especially the yuan. Investors globally have been unnerved by Washington’s unpredictability, with some referring to the current situation as an economic reckoning rather than a simple, bilateral trade war. The legal battle over the extent of the president’s authority to unilaterally impose tariffs is also escalating, with a Supreme Court showdown expected later in the year, further contributing to the uncertainty [para. 1][para. 4][para. 6][para. 13][para. 16].

Meanwhile, as confidence in the U.S. dollar wanes, China is seizing a geopolitical opportunity. Chinese financial institutions are accelerating efforts to internationalize the renminbi (yuan), a strategic initiative that has been underway for over a decade but has gained renewed urgency given the global skepticism toward the dollar. The yuan’s increasing role in global trade is being catalyzed by these shifts, positioning China to play a more dominant role in international finance while the U.S. grapples with internal and external economic challenges [para. 2][para. 7][para. 8].

Vietnam, traditionally a manufacturing base for cost-sensitive Chinese companies or those seeking to circumvent Western tariffs, is now being viewed as a lucrative consumer market due to its rapidly growing middle class. However, Chinese businesses are discovering the complexities of localizing their brands to appeal to Vietnamese consumers. According to Zheng Dong, a founder of a Ho Chi Minh City brand consultancy, many firms mistakenly believe that localization is limited to language translation and competitive pricing, when it in fact requires deeper cultural adaptation [para. 3][para. 10][para. 11][para. 12].

At the same time, the Vietnamese government is actively adjusting its policies to attract higher-quality foreign investment and upgrade its industries. Recent decrees link government subsidies to participation in domestic supply chains, and upcoming revisions to corporate tax laws will restrict certain exemptions to firms investing in priority sectors and locations. This signals a shift from merely attracting foreign capital to strategically structuring investment to foster domestic industrial growth [para. 14][para. 15][para. 17].

Further intensifying the trade conflict, China has imposed anti-dumping duties of up to 78.2% on certain U.S.-made fiber optic products, targeting companies such as Corning Inc., OFS Fitel LLC, and Draka Communications Americas Inc. This move, part of China’s first anti-circumvention case of this kind, is designed to counter U.S. exporters allegedly circumventing earlier tariffs [para. 18][para. 19][para. 20][para. 21].

Finally, a recent U.S. federal appeals court ruling declared Trump’s reciprocal tariffs unlawful, raising industry hopes for a reduction in tariff pressures. The Trump administration has already appealed to the Supreme Court, with arguments expected later in the year. While the hearing is likely, a final decision may not arrive until summer 2026, leaving significant uncertainty for U.S. trade policy and industry strategy [para. 24][para. 25][para. 26][para. 27][para. 28].