Trump may use finance as a weapon against allies after the shock of the tariffs.

 By Success Okwu

Some observers believe that U.S. President Donald Trump could take even more aggressive steps following his latest tariffs on imports. As the world’s financial center and issuer of the global reserve currency, the United States holds several powerful tools — from dollar-based trade systems to control over credit card networks — that Trump could potentially use to pressure other countries into compliance.

Using these financial “weapons,” however, could backfire and damage the U.S. economy as well. Still, some economists say these scenarios shouldn’t be dismissed, especially if the tariffs fail to reduce America’s trade deficit — a likely outcome, they argue, given the tight labor market and limited domestic production capacity.

On Friday, China hit back with retaliatory tariffs, worsening tensions and sending U.S. stock markets tumbling, according to a report by Reuters.

 “I could imagine that Mr. Trump gets frustrated and tries to implement silly ideas, even when they don’t make sense,” said Barry Eichengreen, professor of economics and political science at the University of California, Berkeley.

The ‘Mar-a-Lago Agreement’

A key part of the U.S. government’s unofficial strategy to fix trade imbalances is to weaken the dollar. One proposed method: convincing foreign central banks to strengthen their own currencies — a move that could resemble the 1985 Plaza Accord, but under a new name, the Mar-a-Lago Agreement, referencing Trump’s Florida resort.

This idea was floated in a November paper by Stephen Miran, a Trump ally nominated to the Council of Economic Advisers. According to the paper, the U.S. could use a mix of tariffs and promises of military support to pressure allies into currency adjustments and other economic concessions.

But many economists are skeptical. Maurice Obstfeld, a senior fellow at the Peterson Institute for International Economics, said the plan is highly unlikely to succeed — especially in today’s very different geopolitical and economic climate.

 “I think that’s a really unlikely idea,” said Obstfeld. He pointed out that since the tariffs are already in place, they no longer carry the weight of a threat. Meanwhile, the U.S.'s security commitments — especially its stance on Ukraine — appear less reliable than in the past.

Obstfeld also noted that central banks in Japan, the U.K., the Eurozone, and the U.S. would likely oppose a deal that could force them to raise interest rates and risk triggering recessions. Freya Beamish, chief economist at TS Lombard, added that strengthening China’s currency, the yuan, would directly conflict with Beijing’s need to stimulate its struggling economy.

Even Japan, which has frequently intervened in currency markets to support the yen, remains wary after decades of deflation. Officials may be reluctant to let the yen rise too far.

Dollar as Leverage

If a formal currency deal fails, Trump could turn to more aggressive tactics — leveraging the dollar’s dominant role in global trade, investment, and savings.

One such move, according to Obstfeld, could involve threatening to cut off dollar “swap lines” — arrangements that allow foreign central banks to access U.S. dollars in exchange for their local currencies. These facilities are essential during financial panics, helping stabilize banks in major economies like Japan, the U.K., and across the Eurozone, where dollar funding markets total trillions.

While the Federal Reserve controls these swap lines, and Trump hasn’t publicly indicated plans to interfere with the central bank’s independence, recent personnel changes in key financial regulatory roles have raised eyebrows.

 “It’s no longer impossible that, in a larger negotiation, this could be used as a nuclear threat,” said Spyros Andreopoulos, founder of Thin Ice Macroeconomics consultancy. He warned that such actions could ultimately undermine the dollar’s global standing.

Weaponizing Credit Cards

Payment giants Visa and Mastercard — both American companies — represent another potential tool. Although countries like China and Japan have developed their own digital payment systems, Visa and Mastercard still process two-thirds of card payments in the Eurozone.

U.S. tech firms like Apple and Google also dominate mobile payments, which now make up nearly 10% of in-store purchases across Europe.

If these services were restricted — as they were in Russia following its invasion of Ukraine — European consumers could be forced to rely on cash or slower bank transfers for everyday transactions.

 “That the U.S. has turned mean is a huge problem,” said Maria Demertzis, chief economist for Europe at the Conference Board think tank.

The European Central Bank has warned that Europe is exposed to “economic pressure and coercion.” One proposed solution is the creation of a digital euro, but the project remains stalled in political negotiations and may take years to implement.

European policymakers are weighing how to respond to Trump’s tactics without escalating tensions. Options include retaliatory tariffs or even blocking U.S. banks from operating in Europe. But such moves are risky, given the global power of Wall Street and the potential for financial backlash.

Executives at some international banks have expressed concern that Europe may feel forced to respond in the coming months — a situation that could lead to unpredictable consequences on both sides of the Atlantic.

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