Macroeconomics Case Study

Protectionism or Free Trade - Fears of De-Dollarization

OR

Abstract:
The case explores how the US dollar had influenced global trade policies – free trade and protectionism – for a long time. Though free trade gained momentum in the 20th century, its roots were ancient – much before British colonization and their industrial expansion. After World War II, the Bretton Woods agreement helped the US strengthen its currency, the US dollar, and global trade volumes were enhanced with the GATT and the formation of the WTO. Exchange rate systems for global trade paved the way for dollarization, when the US abandoned the gold standard in 1971 and entered into an agreement with Saudi Arabia and other OPEC states for 50 years to trade oil in US dollars. Since the deal ended in June 2024, trade in “non-dollar currencies” posed a potential threat to the US economic dominance in the emergence of a new global order where nations such as China, Russia, and India had started to influence the global financial system.

However, in 2025, in the second term of Donald Trump as the US President, protectionist policies such as tariffs, industrial subsidies, and special taxes were announced to derail efforts to shift from dollar dominance. Going forward, analysts wondered that given the protectionism policies, tariff wars, and changing geopolitical landscape influencing the US dollar, uncertainty would linger over the currency’s trend. Whether the currency would gain resilience or fall back remained uncertain.

Pedagogical Objectives:

• Understand the reasons behind free trade
• Study the effect of government trade policies on trade volumes
• Recognize the role of WTO in free trade
• Examine the rise of the US dollar in international trade
• Identify the effect of trade barriers on prices and output

Keywords : Free Trade; Protectionism; Open Economy Framework; Trade Agreements; Trade Blocks; Trade Blocs