How China, Europe, and De-Dollarization Will Challenge US Leadership

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For over seven decades, the world has operated within a framework known as the “rules-based international order.” This system of laws, agreements, and institutions was built largely by the United States and its allies after World War II. America’s central role in founding the United Nations, NATO, International Monetary Fund, and World Bank has defined the post-war era.

Now that era faces a profound challenge. As the United States recalibrates its global posture, moving away from its traditional role as the system’s primary guarantor, a power vacuum is emerging. This shift creates opportunities for new players to reshape global governance.

The contenders include China with its Belt and Road Initiative, the European Union pursuing “strategic autonomy,” and systemic challenges like the de-dollarization of oil markets and the rise of alternative monetary systems.

In This Article

• The article argues that the post‑World‑War II “rules‑based international order” (built largely by the U.S. via institutions like United Nations, International Monetary Fund, and World Bank) is now under strain, partly because the U.S. is recalibrating its global posture and appears less willing to act as guarantor. GovFacts
• It identifies three major challengers to U.S. dominance:
  • China, through initiatives like the Belt and Road Initiative (BRI) and efforts to reshape global supply‑chains and trade corridors. GovFacts
  • European Union, pursuing “strategic autonomy” — the capacity to act independently of the U.S. in foreign policy, regulation and economic affairs. GovFacts
  • The trend of de‑dollarization: countries seeking to reduce reliance on the U.S. dollar in reserves, trade invoicing and payments, partly to avoid U.S. sanction risk and gain monetary autonomy. GovFacts
• On de‑dollarization specifically, the article notes that oil markets and payment/settlement systems are focal points (move towards local currencies, alternative settlement systems) and that gold and cryptocurrency are emerging as alternative anchors. GovFacts
• The article suggests that these shifts challenge U.S. leadership by weakening the structural advantages (economic, regulatory, currency) that the U.S. has held — making the global order more contested and multipolar. GovFacts

So what?

• Global power rebalancing: The article implies that U.S. leadership is not assured and may decline if competitors such as China and Europe succeed in reshaping norms, trade systems and currency architecture.
• Currency & financial leverage: De‑dollarization threatens one of the U.S.’s major levers of influence — the dominance of the U.S. dollar. If fewer countries rely on the dollar for trade/settlement, the U.S. may lose some financial and sanction tools.
• Institutional vulnerability: If the rules‑based order appears biased, inequitable or weakened, other states may invest less in U.S.-led institutions and more in alternative frameworks — reducing U.S. soft power and structural influence.
• Policy implications for the U.S.: The article suggests the U.S. must rethink how it sustains leadership — not merely through economic strength but by updating institutional frameworks, cooperating with allies, and managing currency/financial risks.
• Emerging horizon of competition: For analysts, policymakers and businesses, the piece signals that the future international system may be less U.S.-centric and more contested — meaning multipolar dynamics, currency diversification, new payment systems, and regulatory competition will matter more.

The Rules-Based Order Under Strain

The rules-based international order is the framework of political, legal, and economic norms governing international relations since the 1940s. U.S. Secretary of State Antony Blinken described it as the “system of laws, agreements, principles and institutions that the world came together to build after two world wars.”

This multi-layered system builds upon national sovereignty principles but includes a dense web of treaties and multilateral institutions designed to regulate interdependence and solve shared problems.

The Legitimacy Crisis

The term “rules-based order” is not neutral. It’s a political frame developed by Western nations, particularly the United States, to rally coalitions against perceived disruptors like China and Russia. Beijing and Moscow object strongly, viewing it as a thinly veiled attempt by the West to impose a unipolar world where select countries write rules for everyone else.

This critique points to deep-seated crises eroding the order’s foundation: legitimacy and equity problems.

A primary challenge is widespread perception that the United States doesn’t consistently follow the rules it champions. Critics frequently point to American exceptionalism, where the U.S. wants rules for others while exempting itself.

The 2003 Iraq invasion under contested UN authorization, failure to close Guantanamo Bay, torture during the “war on terror,” and continued drone strikes are cited as actions undermining America’s moral authority. The United States has refused to ratify the Rome Statute of the International Criminal Court and UN Convention on the Law of the Sea, two cornerstones of the legal architecture it otherwise promotes.

Historical records show even at the 1945 San Francisco summit creating the UN, U.S. military intelligence was intercepting allied delegates’ communications, suggesting pragmatic national advantage pursuit has always coexisted with idealistic rhetoric.

The Equity Crisis

The second major challenge is persistent view, particularly from the Global South, that the order benefits wealthy nations at the majority’s expense. From this perspective, post-war decolonization simply replaced formal Western control with informal constraints like sovereign debt and foreign economic interest domination of key markets.

The 2008 global financial crisis, originating in the United States but causing worldwide suffering, amplified this discontent, exposing perceived deep structural unfairness. China and Russia now actively leverage this sentiment, positioning themselves as champions of a more equitable world and framing the existing order as a self-serving U.S.-led construct.

These crises reveal a foundational contradiction. The system promotes universal rules transcending raw power, yet its existence and enforcement have been underwritten by a single nation’s hegemonic power. When the hegemon’s actions serve its own interests over stated principles, it exposes the reality that power politics can override the system’s stated values.

America’s Transactional Turn

The main trend in U.S. foreign policy over two decades has been a shift away from robust post-WWII internationalism toward a more selective, transactional, and sometimes neo-isolationist posture. This change was most explicit during the Trump administration’s “Make America Great Again” policy, but reflects deeper, bipartisan currents.

Strategic Evolution

This evolution is documented in the U.S. National Security Strategy, mandated by the Goldwater-Nichols Act of 1986. The 2015 strategy under President Obama still explicitly committed to “advancing a rules-based international order.”

By contrast, the 2017 strategy under President Trump represented a dramatic break, prioritizing national economic security and bilateral deal-making over multilateral commitments. The 2022 strategy from the Biden administration frames the central challenge as strategic competition between democracies and autocracies, specifically China and Russia.

However, it dedicates a core pillar to investing in domestic strength, signaling continued belief that internal renewal is the necessary prerequisite for effective global leadership.

Trade Policy Changes

A key manifestation of this transactional turn is U.S. trade policy. America has moved from championing multilateral institutions like the World Trade Organization toward unilateral tariffs and aggressive bilateral negotiations.

The Trump administration imposed tariffs on allies and adversaries alike, including the European Union, explicitly aiming to shrink U.S. trade deficits and rewrite perceived unfair deals. A recent trade framework with the EU in 2025, setting 15% tariffs on most goods, was presented as a transactional victory preventing higher rates.

This approach creates significant uncertainty for partners. Nations like Japan, Indonesia, and Vietnam have expressed concern over the U.S. making unilateral announcements about unsigned agreements and promoting interpretations differing from their own, breeding caution and mistrust.

Domestic Criticism

This shift draws sharp criticism from within the U.S. political spectrum. Figures like Senator Bernie Sanders argue this transactionalism is merely the latest chapter in a long, bipartisan history of flawed foreign policy decisions.

This critique contends that for decades, U.S. policy has been misguided, from unwinnable wars in Vietnam and Iraq based on false pretenses to disastrous trade agreements like NAFTA and China’s WTO entry terms, blamed for offshoring millions of American jobs and stagnating working-class wages.

The American pivot to unilateral and transactional foreign policy is not merely a symptom of a changing world but an active catalyst accelerating the fragmentation of the order it created. The post-war system was built on strategic bargain: the United States provided security and open market access, and allies aligned with U.S. leadership within U.S.-designed institutions.

By treating key allies like the EU and Japan as economic rivals managed with tariff threats, the U.S. signals this bargain is no longer sacrosanct. This forces allies to hedge their bets, creating strategic openings for adversaries.

China’s New Order Vision

China’s foreign policy has undergone dramatic transformation, moving from Deng Xiaoping’s cautious maxim to “hide one’s talent and bide one’s time” to Xi Jinping’s assertive global vision. At the heart of this vision is the concept of a “Community of Common Destiny,” advocating for a multipolar world order based on equal sovereignty and non-interference in internal affairs.

This represents a direct ideological challenge to Western liberal internationalism, which has often justified intervention in other countries’ affairs to promote human rights and democracy.

Official Strategy

This vision is codified in China’s 2025 National Security White Paper, portraying China as a “source of stability and certainty” in a turbulent world and defender of more inclusive, “win-win” globalization. It sharply criticizes the United States as a “hegemonic” power clinging to a “Cold War mentality,” weaponizing trade and attempting to contain China’s rise.

The document makes clear China’s paramount concern is “political security,” defined as preserving undisputed Chinese Communist Party leadership.

Infrastructure of Influence

China is actively building parallel, Sino-centric system infrastructure through several key instruments:

Belt and Road Initiative (BRI): This colossal global infrastructure plan develops new trade routes connecting China with Asia, Africa, and Europe. The BRI aims to secure China’s trade routes, create land-based corridors bypassing maritime chokepoints like the Strait of Malacca that could be controlled by the U.S. Navy in conflict, create new overseas markets for China’s industrial sectors facing domestic overcapacity, and foster deep economic dependency among partner nations.

Asian Infrastructure Investment Bank (AIIB): Headquartered in Beijing, the AIIB has rapidly become the world’s second-largest multilateral development bank. It serves as a direct alternative to Western-dominated World Bank and IMF, providing financing for massive infrastructure projects forming the BRI backbone.

Institutional Influence

Beyond creating new institutions, China is increasing its influence within existing ones. It has become a major financial contributor to UN peacekeeping operations—its allocation now exceeds Japan and Germany’s combined contributions—and secured leadership positions in four of 15 UN specialized agencies.

This gives China powerful voice in shaping international standards in telecommunications, aviation, and agriculture. Within the WTO and IMF, it has become an active, if challenging, participant, leveraging its growing economic weight.

Strengths and Weaknesses

As a potential global leader, China possesses formidable strengths: the world’s second-largest and fastest-growing economy, politically stable authoritarian governance under the CCP, the world’s largest foreign exchange reserves, world-class infrastructure, and a rapidly modernizing military.

Its unique governance model, blending centralized political control with decentralized economic authority, enables ambitious, long-term strategic decisions with remarkable speed.

However, China’s weaknesses are equally significant. It suffers from severe soft power deficit due to its authoritarian system, poor human rights record, and foreign policy often perceived as assertive and self-interested. Internally, it faces unsustainable corporate and local government debt levels, extreme income inequality between coastal cities and rural interior, catastrophic environmental degradation, and looming demographic crisis from rapid population aging.

Its centralized system, while efficient in executing plans, is also brittle and prone to over-reaction, with critical bottom-up information flows often choked by fear and political loyalty.

Strategic Approach

China’s grand strategy appears to be a patient, systematic entanglement. It’s not seeking direct, violent overthrow of the existing order but working to methodically enmesh the world in new economic and technological dependencies centered on Beijing.

It skillfully uses old order language—multilateralism, free trade, global development—to build a new one. This is evident in its “gradualist” approach to trade agreements, offering generous initial terms to foster economic dependence first, then using newfound leverage to expand scope and favorability in later negotiations.

The BRI and AIIB function as primary vectors for this strategy, embedding Chinese technology, engineering standards, and capital into dozens of countries’ core infrastructure across multiple continents. China is also working to set global technical standards in next-generation technologies like telecommunications and artificial intelligence.

Failed Attempts to De-Dollarize

Despite concerted efforts by the BRICS countries and others to reduce reliance on the U.S. dollar, the study concludes that de‑dollarization has made little headway. The dollar remains firmly entrenched as the world’s primary reserve currency, dominating trade invoicing and currency transactions globally. Reuters While sanctions on Russia and initiatives like China’s growing Cross‑Border Interbank Payment System (CIPS) signalled intent to shift away from dollar dominance, the report observes that the share of China’s renminbi in global reserves actually fell from 2.8 % in 2022 to 2.3 % by May 2024. Reuters Moreover, the euro, once viewed as a strong contender, has weakened due to concerns about fiscal stability, capital‑market fragmentation, and its exposure to geopolitical risk. Reuters Overall, the report asserts that the structural advantages of the U.S. dollar — deep capital markets, liquidity, trust and network effects — continue to shield it from meaningful displacement in the near to medium term. Reuters

The European Union’s Regulatory Power

In the face of a more unpredictable United States and increasingly assertive China, the European Union is charting its own course centered on “strategic autonomy.” First articulated in the European Council in 2013, strategic autonomy is broadly defined as the EU’s ability to pursue foreign policy objectives and defend interests without excessive reliance on other powers, particularly the United States.

This ambition, championed by leaders like French President Emmanuel Macron, was born from growing concerns about U.S. reliability and desire for the EU to emerge as a “third superpower” in a multipolar world. The EU’s official 2016 Global Strategy for Foreign and Security Policy outlines key priorities: ensuring Union security, building resilience in eastern and southern neighborhoods, and strengthening a rules-based global order.

The Brussels Effect

The EU’s primary instrument of global power is not military might but the “Brussels Effect.” The EU constitutes one of the world’s largest and wealthiest single markets, a bloc of nearly 450 million consumers with immense purchasing power.

Few global corporations can afford to ignore this market. To gain access, companies must comply with the EU’s stringent regulations on data privacy, environmental protection, food safety, and consumer rights. Because it’s often more economically efficient for multinational firms to adopt the EU’s high standards across entire global production and supply chains rather than create different products for other markets, the EU effectively exports its regulatory framework worldwide.

Prominent examples include the EU’s General Data Protection Regulation (GDPR), which became a global standard with tech giants like Facebook and Microsoft implementing its core principles for all users globally. The EU’s REACH regulation on chemicals forced companies like Dow Chemical to adopt its standards worldwide, and its airplane emissions rules pushed the global aviation industry toward cleaner technologies.

Strengths and Limitations

As a potential global leader, the EU’s strengths are formidable. It wields immense economic power as the world’s largest trade bloc and boasts a major global reserve currency in the Euro. It leads in normative “soft power,” championing human rights, democratic values, and ambitious climate action while being collectively the world’s largest international development aid donor.

Its trade agreements are comprehensive, explicitly linking market access to commitments on labor rights, environmental protection, and political freedoms.

However, the EU’s weaknesses are pronounced. It suffers from a significant “hard power” deficit, remaining largely dependent on the United States and NATO for military security. Its greatest structural weakness is the propensity for internal division.

Comprising 27 sovereign member states, the EU often struggles to “speak with one voice” on critical foreign policy issues. This need for consensus can lead to slow, indecisive, or lowest-common-denominator policy responses, damaging its credibility and effectiveness as a global actor.

China Relations

The EU has officially labeled China a “systemic rival” and “economic competitor,” recognizing the two blocs are engaged in fundamental rivalry of systems. Both vie to position themselves as the rational, stable alternative to a volatile United States and establish their respective currencies as more significant parts of the global reserve system.

Their approaches to global influence are diametrically opposed: the EU uses comprehensive, normative trade deals to export its values, while China uses gradualist, non-conditional deals to create economic leverage and dependency.

Tensions are escalating over the massive EU-China trade deficit and China’s state-subsidized industrial overcapacity, particularly in electric vehicles and green technology, which the EU fears creates new dangerous strategic dependency.

The EU’s greatest strength—regulatory power—is paradoxically the source of its greatest limitation as a global power. The Brussels Effect allows unilateral shaping of global markets and corporate behavior, but this “soft power” doesn’t readily translate into “hard power” required to manage acute geopolitical crises.

De-Dollarization and Oil Markets

Since the Bretton Woods Agreement of 1944, the U.S. dollar has reigned supreme as the world’s primary reserve currency. This status confers “exorbitant privilege”: the unique ability to run massive trade and budget deficits and finance them by printing more of its own currency, a luxury no other nation enjoys.

The Petrodollar System

A central pillar supporting dollar dominance has been the petrodollar system. For decades, an informal agreement first brokered in the 1970s ensured the world’s largest oil producers, led by Saudi Arabia, would price crude oil exports exclusively in U.S. dollars.

This arrangement created constant, massive global demand for dollars, as every country importing oil first had to acquire them. In June 2024, some social media reports said Saudi Arabia opted not to renew this long-standing pact, signaling a monumental shift toward selling oil in various currencies, including Chinese yuan, euro, and Indian rupee. However, the agreement was never a formal requirement, and while the Saudis may investigate selling in other currencies they have not, as of late 2025, moved from the dollar-based sales that started 50 years ago.

Driving Forces

This move manifests a broader, accelerating global trend: de-dollarization. The impetus is driven by several converging factors:

Weaponization of U.S. Financial System: America’s aggressive use of economic sanctions, notably cutting Russia from the SWIFT international payment system after its Ukraine invasion, sent chills through capitals worldwide. It demonstrated that dependence on U.S.-controlled financial infrastructure could be critical vulnerability, prompting many nations to seek alternatives.

Rise of BRICS: Now expanded to include major energy producers like Saudi Arabia, Iran, and the United Arab Emirates, BRICS has become a vocal de-dollarization advocate. The bloc actively promotes using members’ national currencies for bilateral trade and explores creating a common payment system to bypass the dollar entirely.

Erosion of Trust: More general erosion of trust in U.S. economic stewardship and moral leadership, particularly among Global South nations, fuels a powerful desire to reclaim monetary sovereignty.

Concrete Evidence

This trend is visible in concrete policy actions and economic data. The share of U.S. dollars in global central bank reserves has fallen from over 71% in 1999 to below 59% by 2023, according to IMF data.

Major energy deals are now settled in other currencies, such as China paying for Russian oil in yuan and French companies settling LNG sales to China in yuan. India has begun settling oil trades with both the UAE and Russia in rupees.

Global De-Dollarization Initiatives

Self-Reinforcing Process

De-dollarization is best understood not as a linear decline but as a self-reinforcing feedback loop. The dollar’s dominance builds on powerful network effects: everyone uses it because everyone else uses it, creating deep, liquid, efficient markets difficult to replicate.

For a single country to de-dollarize alone would be prohibitively costly and inefficient. However, when a powerful bloc like expanded BRICS begins building alternative financial infrastructure—new payment systems or bilateral currency swap line networks—the cost and risk for each member to participate decreases significantly.

Each step taken by one country makes it easier and more attractive for the next to follow. When a cornerstone like Saudi Arabia agrees to accept yuan for oil, it instantly creates large, new, non-dollar-based demand for Chinese currency, making it more useful for other countries to hold and transact in.

Gold vs. Cryptocurrency: The New Monetary Anchor

As the U.S. dollar’s role as an unquestioned anchor of the global financial system comes under challenge, a search is underway for a new source of stability. This search proceeds along two different, competing paths: return to the tangible security of gold and leap into the digital frontier of cryptocurrencies.

The Gold Revival

In an era of fiat currencies—money backed only by government decree—and spiraling sovereign debt, gold is re-emerging as a potential bulwark against instability. Proponents of returning to a gold standard argue it imposes crucial discipline on governments.

By requiring currency to be backed by a finite physical asset, it prevents limitless money printing, providing a powerful check on inflation, government spending, and debt accumulation. Historical analysis suggests that during the long period when the United States operated under gold or metallic standard, the economy experienced higher average growth rates and lower unemployment compared to the subsequent fiat era.

Central banks worldwide are voting with their vaults, diversifying reserves away from the dollar and buying physical gold at a pace not seen in decades. This represents a collective flight to a tangible, politically neutral asset that cannot be devalued by a single country’s policy decisions or weaponized through financial sanctions.

Critics raise significant concerns, arguing fluctuating gold supply and value don’t provide price stability necessary for modern economy and tying money supply to metal would severely hamstring government ability to respond effectively to recessions and economic crises.

The Cryptocurrency Alternative

At the opposite end, cryptocurrencies and blockchain technology present a radical, decentralized alternative to the entire state-controlled monetary system. Their core promise is creating borderless, peer-to-peer value transfer mechanism bypassing traditional intermediaries like banks and governments.

For international finance, this technology offers potential for dramatically faster and cheaper cross-border payments and remittances, a trillion-dollar market currently saddled with high fees and slow processing times.

Stablecoins—cryptocurrencies pegged to stable assets like the dollar—are seen by some U.S. regulators as “groundbreaking payment technology” that, if properly regulated, could enhance financial system efficiency and even reinforce U.S. leadership.

Beyond efficiency, cryptocurrencies also hold potential to democratize finance by providing access to services like lending, borrowing, and earning interest to billions of unbanked or underbanked people worldwide.

Risks and Challenges

The path to this digital future is fraught with risk. Primary challenges are the extreme price volatility of many cryptocurrencies, the complex and uncertain regulatory landscape, and persistent concerns about their use in money laundering and illicit activities.

Governments worldwide, from the U.S. to Pakistan, are grappling with creating legal frameworks that foster innovation while protecting consumers and ensuring financial stability.

Ideological Battle

The intensifying competition between gold and crypto represents more than a debate over which asset is a better store of value. It represents a fundamental ideological battle for the soul of the next global financial “operating system.”

Gold represents a return to a known paradigm: a tangible, physical anchor primarily held and controlled by states. A gold-backed system is still ultimately state-centric, where power resides in central banks with the largest reserves.

Cryptocurrencies, particularly decentralized ones like Bitcoin, represent a revolutionary break from this state-centric model. Their entire value proposition is independence from the central bank and finance ministry whims.

The global rise of Central Bank Digital Currencies (CBDCs) can be seen as state-led counter-revolution—an attempt by governments to co-opt efficient crypto technology (digital ledgers) while retaining centralized control of fiat money.

The vacuum left by the gradual dollar decline will not be filled by a single, neat successor. Instead, it’s becoming the primary arena for contest between these competing philosophies. One seeks to re-ground existing international order in “hard” physical asset. The other seeks to transcend state-based order entirely with new, digitally native, decentralized infrastructure.

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