Steve Kamin and Mark Sobel on the Outlook of Dollar Dominance

In this episode of Macro Musings, host David Beckworth welcomes back two veteran international economists, Steve Kamin and Mark Sobel, to discuss the future of dollar dominance in a rapidly shifting global economic landscape. The conversation centers on whether the U.S. dollar’s long-standing global supremacy is under threat, with Kamin and Sobel cautioning that while the dollar remains dominant, its foundations are being eroded by a series of 'termites'—namely, poor fiscal policy, erosion of trust in institutions, strained alliances, and the overuse of financial sanctions. They analyze recent market behavior, including the dollar’s unexpected decline after President Trump’s 'Liberation Day' tariffs in April 2025, which briefly disrupted its safe-haven status. However, they conclude that the dollar has since regained its traditional flight-to-safety role, suggesting that short-term policy shocks alone are not enough to dislodge its dominance. The discussion then turns to the Treasury Foreign Exchange Report, the role of dollar stablecoins, and the controversial use of Section 122 of the 1974 Trade Act to justify new tariffs, which the guests argue lacks economic justification. Finally, they examine the emerging 'second China shock,' where China’s massive manufacturing exports, driven by state investment and a weak yuan, are posing new challenges to global trade and development pathways for emerging economies.