BOC Securities believes that the "reciprocal tariff" introduced by the United States can be regarded as a policy measure to suppress the global circulation of the US dollar. It reflects the US government's choice to consolidate American hegemony at the expense of the dollar's dominance when faced with the "fundamental Triffin dilemma." In this sense, the "reciprocal tariff" is a landmark event signaling the decline of the global circulation of the US dollar. The weakening of the dollar and US Treasury bonds, along with the strengthening of gold prices following the policy's introduction, are manifestations of the turning point in the global circulation of the US dollar.
During the globalization process since the 1980s, the international economy has developed a situation of "global imbalances," with the United States being the primary trade deficit country, accounting for the majority of the world’s total trade deficits. Within this global imbalance, the global circulation of the US dollar has accompanied the flow of goods worldwide — the US dollar flows out of the United States through purchases of foreign goods and returns via investments into the US financial markets. It was the decoupling of the dollar from gold in 1971 that ushered the global economy into the "Jamaica System" era, freeing it from the automatic correction mechanism of trade imbalances under the "Hume mechanism," thereby making global imbalances possible. Thus, it can be said that the global circulation of the US dollar gave rise to global imbalances.
Within the flourishing landscape of the global circulation of the US dollar lies the seeds of its eventual decline. Currently, surplus countries' demand for the dollar remains strong, but these seeds of decline are beginning to sprout within the United States. The US dollar has inflicted "Dutch Disease" on the American economy, leading to the decline and hollowing out of US manufacturing, which poses a threat to America’s long-term hegemony. The United States is confronting the "fundamental Triffin dilemma," namely, the contradiction between American hegemony and the hegemony of the dollar — while American hegemony created the dominance of the dollar, the dominance of the dollar, in turn, leads to the decline of American hegemony and ultimately the loss of dollar dominance.
The "reciprocal tariff" introduced by the United States in April 2025 can be seen as a policy measure aimed at suppressing the global circulation of the US dollar. It reflects the US government's decision to consolidate American hegemony at the expense of the dollar's dominance when facing the "fundamental Triffin dilemma." From this perspective, the "reciprocal tariff" represents a landmark event marking the transition of the global circulation of the US dollar from prosperity to decline. The subsequent weakening of the dollar and US Treasury bonds, alongside the strengthening of gold prices, are manifestations of the turning point in the global circulation of the US dollar.
China can draw three key insights from the rise and fall of the global circulation of the US dollar. First, in the long term, the internationalization of the renminbi should not aim to replace the dollar or establish renminbi dominance. Second, in the medium term, China should actively expand domestic demand and promote consumption transformation, relying more on a smoother "internal circulation" to reduce dependence on "external circulation." Third, in the short term, China is likely approaching the "ceiling" of external demand.
BOC Securities noted that the unusually high gold prices in 2025 are also related to the turning point in the global circulation of the US dollar. Typically, gold is a special commodity with hedging attributes, exhibiting significant countercyclical behavior: during periods of robust global economic performance, gold price increases tend to lag behind those of major industrial raw materials; conversely, during economic downturns, gold prices often outperform industrial raw material prices. Over the past 40 years, this countercyclical nature of gold prices has been quite pronounced. However, a shift began in June 2024. Since then, over the course of more than a year, international economic sentiment, as measured by the OECD Leading Indicator for the G7 countries, has significantly improved, reflecting overall positive economic conditions. Based on the previous 40 years of experience, gold prices should have underperformed industrial raw material prices during this period. Contrary to expectations, however, gold prices have instead outpaced industrial raw material prices, reaching new highs unseen in four decades, completely breaking historical trends.
The abnormal surge in gold prices reflects the turning point in the global circulation of the US dollar. Despite there being no viable alternative to the dollar among potential international payment tools (including gold), a decline in confidence in the dollar still affects the prices of various assets. For international investors, although no substitute for the dollar has emerged, it is reasonable to slightly reduce dollar assets and increase gold holdings in their asset allocation. This unusual rise in gold prices likely stems from such considerations.
