Trade Wars, the U.S. National Debt and the Dollar Crisis

One sign of America’s economic power has been the fact that everyone wanted its dollar.

“For eight decades, America’s currency has been the linchpin of trade and finance,” wrote The Economist (“Check Your Privilege,” April 19, 2025). This dominance made the dollar the world’s reserve currency.

This has had many benefits for international trade and global influence. And it has made it possible for the United States to finance its enormous debt—something it could never do without the trust of foreign investors. But that trust is eroding.

Dollar crisis and the economics of trust

When money was made of silver and gold, it had value in itself. But with paper money and digital transfers, the value of a currency is entirely a matter of trust.

For decades the U.S. economy, government and dollar were highly trusted. The dollar’s role as the world’s reserve currency was seen as a great strength and blessing. And over that time, the U.S. showed its commitment to a strong dollar. But the U.S. approach is changing.

“Today some White House advisers are talking about the reserve currency as if it were a burden to be shared—using coercion if necessary,” wrote The Economist (“How a Dollar Crisis Would Unfold,” April 19, 2025, p. 7).

This new approach views the dollar’s international popularity as artificially raising its value and hurting American businesses. Yet this overlooks the dangers of suddenly making the dollar less desirable.

“Since its peak in mid-January the greenback has fallen by over 9% against a basket of major currencies . . . If investors are fleeing even though returns are up, it must be because they think America has become more risky. Rumours are rife that big foreign asset managers are dumping greenbacks” (p. 7).

America’s still-growing national debt, its erratic trade policy and the devaluing of its international agreements has “created a risk premium for American assets. The shocking thing is that a full-blown bond-market crisis is also easy to imagine. Foreigners own $8.5 [trillion] of government debt, a bit under a third of the total; more than half of that is held by private investors, who cannot be cajoled by diplomacy or threatened with tariffs. America must refinance $9 [trillion] of debt over the next year. If demand for Treasuries weakens, the impact will quickly feed through to the budget, which, owing to high debts and short maturities, is sensitive to interest rates” (p. 7).

If the world stops financing U.S. debt, it will cause skyrocketing interest and economic collapse.

Deeper in debt

For decades, the U.S. has kicked the can of its national debt down the road. This was possible because of the faith of the world in its stability, and recently by the comparatively low interest rates. But as trust erodes and the interest payments on the debt swallow up larger shares of the U.S. budget, the crisis could suddenly become worse.

Current attempts to drastically reduce government payrolls and other spending, while maintaining mandatory programs like Social Security and Medicare and even increasing tax cuts, will not be able to stop the growth of the national debt.

The nonpartisan Congressional Budget Office forecasts that the debt compared to economic output will rise “from 100% [of gross domestic product] this year to 156% of GDP in 2055. That would be a full 50 percentage points higher than the current record, which was set in 1946” at the end of World War II (FoxBusiness.com, April 7, 2025).

Worse than recession?

Many experts are predicting a recession, stagflation—or worse.

Newsweek reported that billionaire hedge fund manager Ray Dalio, speaking with Meet the Press host Kristen Welker on April 13, said, “I think that right now we are at a decision-making point and very close to a recession, and I’m worried about something worse than a recession if this isn’t handled well.

Obedience to God produces blessings, and disobedience brings curses, including debt, oppression, drought, famine and sieges. “Such times are very much like the 1930s [the Great Depression]. I’ve studied history, and history repeats over and over again . . . If you take tariffs, if you take debt, and the rising power challenging an existing power, and those factors—those changes in the orders, the systems—are very, very disruptive. How that’s handled could produce something that’s much worse than a recession, or it can be handled well” (“U.S. Warned of ‘Something Worse Than Recession,’” April 22, 2025).

Trade wars, real wars

Newsweek also reported, “‘History is littered with examples of trade disputes escalating into armed conflict,’ says the website of the World Trade Organization, which was set up after World War II in part to avoid a repeat of the pre-war trade tensions. ‘It’s a claim that should not be exaggerated, but there is truth in it’” (“Why Trade Wars Lead to Real Wars—and This Time May Be No Different,” April 21, 2025).

No world order?

If investors continue to flee the dollar, where will they go? Will there be continuing chaos, or will other players find a way to restore order?

Ngaire Woods, professor of Global Economic Governance at the University of Oxford, outlined ideas for “Order Without America” in the May/June 2025 issue of Foreign Affairs.

“By renouncing U.S. leadership, the Trump administration appears to be marking the end of American primacy and benevolent hegemony. As the historian Robert Kagan and others have argued, in the absence of the American superpower, a chaotic jungle may emerge.”

To preserve the postwar order, Dr. Woods urged other countries to move “fast to protect and build on those structures, which they will need now more than ever.”

Dr. Woods imagined ways other Western nations could reshape the World Bank, IMF, G-7, G-20 and other institutions to replace U.S. leadership and influence. “If they do not,” she wrote, “many countries may find themselves more exposed than ever, scrambling to protect narrow, short-term interests without leverage or influence in a more dangerous world.”

With stakes so high, will Europe step up? “Today the euro is a solid but distant second to the dollar,” wrote The Economist. “Europe has a chance to assume leadership of a new liberal trading order, which would create opportunities to shape the financial system” (“The Euro’s Moment,” April 19, 2025).

What will it take for Europe to achieve full superpower status, and what does the Bible prophesy about Europe? See our 2022 article “Is the EU a Superpower?”

The rise and fall of Babylon

Students of Bible prophecy recognize that the end time before Jesus Christ’s return will include winners and losers in world trade and economic and military power.

In the end, nations that have benefitted from God’s blessings promised to Abraham, yet that have turned from the God who gave those blessings, will be punished. Jeremiah calls the time of punishment “the time of Jacob’s trouble” (Jeremiah 30:7), and Jesus described it as “great tribulation” (Matthew 24:21).

Yet while the modern descendants of Israel, including the so-called lost 10 tribes, will be suffering, another great power will rise again in Europe. An end-time resurrection of the Roman Empire—a continuation of the Babylonian system that is God’s nemesis throughout the Bible—will achieve great power and prosperity for a short time.

It will follow the path of the evil spiritual king of Babylon and Tyre—Lucifer, the anointed cherub—described in Isaiah 14 and Ezekiel 28. God told him, “By the abundance of your trading you became filled with violence within, and you sinned” (Ezekiel 28:16).

This end-time Babylonian system will be “drunk with the blood of the saints” (Revelation 17:6), and “the merchants of the earth” will “become rich through the abundance of her luxury” (Revelation 18:3).

But its evil dominion will soon end, leaving the merchants of the earth mourning, “For in one hour she is made desolate” (verse 19). However, God’s people will recognize the true significance and will rejoice over God’s vengeance (verse 20).

Then there will be great joy: “For the Lord God Omnipotent reigns!” (Revelation 19:6).

Causes and cures

Church of God publications have been writing about trade wars and economic crises for decades, because they are a symptom of an economic system based on greed, conflict, mistrust and often cheating and deceit. It too often produces temporary winners and many losers.

God is not against wise economic decisions, but these attitudes and the system they produce are opposed to His laws. Obedience to God produces blessings, and disobedience brings curses, including debt, oppression, drought, famine and sieges (Deuteronomy 28:15-18, 24, 33, 43-52; see “Why Is Our Modern World Under Ancient Curses?”).

Thankfully, the world’s economy will be totally revamped when Jesus Christ returns to save this world from itself. God’s way encourages diligence, thrift and generosity, in a way that is able to produce prosperity and fulfilling work for all.

Study further about the world economy in Bible prophecy in our articles “What Is the Future of the World Economy?” “Should We Worry About Growing World Debt?” and “Inflation, Economic Instability and Bible Prophecy.” Learn more about personal finances in our online section “Foundational Principles for Managing Family Finances.”