Global demand for dollars as the reserve currency forces the U.S. to run persistent trade deficits to supply them. This strengthens the dollar and boosts import power but hollows out the domestic industrial base. A future decline in dollar demand would create a painful economic transition.

China's large trade surplus is a symptom of internal economic weakness—primarily suppressed consumption and collapsing investment from its property market crisis. This challenges the narrative of unstoppable manufacturing prowess and suggests the surplus is not sustainable as trade partners react.

Talk of de-dollarization ignores the reality of the U.S. current account deficit, which requires selling over a trillion dollars in financial assets annually. As long as the world buys these dollar-denominated assets (debt and equity), the dollar's dominance is structurally reinforced, not diminished.

Despite China's growing trade surplus, its currency is unlikely to become the world's reserve currency. A closed capital account, weak government bond yields, and an incentive to keep the Yuan weak to fuel exports prevent it from being seen as a global safe-haven asset.

A reserve currency must be globally available and acceptable. China fails on both counts. It won't allow the yuan to be truly mobile because that means losing control, and global partners won't accept it because China's legal system doesn't respect contract law, a vital component of trust in finance.

Despite U.S. fiscal issues, the dollar's position as the world's reserve currency is secure for now due to a lack of viable alternatives. The Euro hasn't closed the gap, China's renminbi faces capital controls, and assets like gold or crypto are not practical for large-scale international transactions.

China's trade surplus is on track to exceed $1.2 trillion, a scale unprecedented in modern peacetime history. This massive imbalance, driven by a strategy of import substitution, raises critical questions about whether the global economy can absorb these surpluses without significant political and economic backlash.

Despite political tensions, China's policy of managing its currency exchange rate compels it to intervene in markets, often buying hundreds of billions of dollars a month. This makes China an unintentional, yet massive, force reinforcing the US dollar's global role, not dismantling it.

Despite economic rivalry, China relies on the US dollar as a primary safe asset. The depth of the US market allows China to deploy its vast capital reserves in a way few other markets can accommodate.