The escalating trade tensions between the United States and China appear to be shifting toward a new battleground: currency dominance. As supply chains restructure in response to Trump’s tariff policies, Beijing is increasingly focused on promoting its yuan as an
alternative to the U.S. dollar’s global supremacy.
China’s central bank chief Pan Gongsheng recently emphasized the regime’s commitment to internationalizing the yuan at Shanghai’s Lujiazui Forum. This push comes as Chinese officials express growing concerns about potential U.S. sanctions and the politicization of traditional cross-border payment systems.
Experts, including Milken Institute chief economist William Lee and business advisor Mike Sun, suggest that currency competition, particularly in digital formats, will become the next major front in U.S.-China economic tensions. The BRICS alliance, which includes Brazil, Russia, India, China, South Africa and several new members, could play a crucial role in this monetary rivalry by creating an alternative trading system denominated in yuan.
Trump has responded forcefully to these developments, threatening additional tariffs on BRICS-aligned nations and warning that the loss of dollar supremacy would be catastrophic for American power. At a recent Cabinet meeting, he equated losing the dollar’s world-standard status to losing “a major world war.”
The current trade landscape reflects significant changes since Trump’s tariff initiatives began. What was once considered radical policy has become normalized, with a global minimum 10% tariff now widely accepted. The administration is using what some describe as a “blind box” approach, issuing individual tariff letters to various countries with rates ranging from 20% to 50%.
Meanwhile, China holds substantial leverage through its ownership of U.S. Treasury bonds, with official holdings of $756 billion, plus additional holdings through European institutions. This position gives Beijing potential influence over U.S. borrowing costs and dollar stability.
China has been developing alternative financial infrastructure, including its Cross-border Interbank Payment System (CIPS) for yuan transactions. While CIPS’s current volume of approximately 700 billion yuan monthly pales in comparison to the U.S.-led CHIPS system’s $50 trillion, it represents significant growth from previous years.
A new frontier has emerged in digital currencies, with stablecoins becoming increasingly important to dollar supremacy. These digital tokens, pegged to the U.S. dollar, have seen transaction volumes exceed those of major credit card companies. Stablecoin issuers have become significant holders of U.S. debt, projected to own more than $1 trillion in Treasurys by 2028.
Recent legislation in both Hong Kong and the United States has established regulatory frameworks for stablecoins, with major Chinese companies preparing to enter the market. U.S. Treasury Secretary Scott Bessent has endorsed stablecoins as reinforcing dollar supremacy, viewing them as a tool to extend American monetary influence into the digital realm.
The ongoing negotiations between the U.S. and China now focus on rare earth minerals and service industry access. While China has
historically dominated rare earth production, American initiatives, including a $400 million investment in MP Materials and Department of Defense support, are working to reduce this dependency. China’s opening of its service sector, particularly in banking and
investments, could serve as a bargaining chip while potentially making the country “too big to sanction.”