By Peggy McInerny, Director of Communications

U.S. tariff policies, a rapid shift to green energy in Asia and policies that promote a carbon-dominant economy in the U.S. are likely end the dollar's status as the dominant trade financing vehicle and preferred global savings asset, said Mark Blyth at the Burkle Center.

UCLA International Institute, May 23, 2025 — “The U.S. dollar regime as it stands, which has basically been the … monetary engine of American growth and global hegemony for the past 35 years, is in the process of being actively disowned by the United States,” said Mark Blyth at a lecture co-sponsored by UCLA's  Burkle Center and department of political science earlier this year.

“And the electoral success of what I call the carbon coalition in the U.S., which are the forces behind the Republicans at the moment, will effectively doom it further.”

Blyth is William R. Rhodes ’57 Professor of International Economics and director, Rhodes Centre for International Economics and Finance at the Watson Institute for International and Public Affairs of Brown University, where he holds a joint appointment in the department of political science.

He spoke in detail about the interaction between and the impacts of two ongoing phenomena. First, U.S. tariff policies and the rapid shift to green energy in Asia will likely end the U.S. dollar’s status as the dominant trade financing vehicle and preferred global savings asset, a status that has enabled the country to sustain high levels of consumption and debt for close to four decades.

Second, the U.S. has shifted away from meaningful climate action to active climate denialism.

Is it realistic to use tariffs as a tool to re-industrialize?

The advent of free trade agreements in the 1990s decimated U.S. manufacturing, particularly in the Midwest. As the service sector of the U.S. economy grew, a wage stagnation plateau and massive real estate disruption ensued, enabling the financial sector to explode, explained the speaker.

The result, he said, has been the financialization of the U.S. economy and a world trade system in which leading exporting countries sustain their position by investing their surpluses in U.S.-dollar assets.

“Essentially, you’re selling stuff,” Blyth explained. “You get dollars. You don’t want the dollars. You turn the dollars into local currency in a way that suppresses consumption [and inflation driven by wage and price increases].

“You then take those dollars, turn them into a T-bill [U.S. Treasury bond] that’s effectively giving us the money back. So we give you a digital certificate bearing 2% and there’s this money-lending merry-go-round.

“The dollar continues to dominate trading crucial commodities… [but] you don’t make anything anymore,” observed the political scientist. “You are hollowing out your capacity to basically self-provision, despite having the world’s largest economy.

“That puts you in a strategically vulnerable position ... [because] the intermediations and linkages between vital sectors are desperately dependent upon the import of components, etc., that come from second countries,” he continued. “You are extraordinarily vulnerable in this instance.”

Although the Trump administration is raising tariffs on U.S. trading partners in the expectation of creating conditions to re-industrialize the U.S. economy, Blyth considered that goal highly difficult to achieve.

“The problem… is that the whole world is de-industrializing. So if you’re trying to actually re-industrialize in that context, it’s hard,” he explained. In addition, he noted the argument of Dan Davies in the book, “The Unaccountability Machine” (2024): the outsourcing and privatization of state functions has caused the U.S. government to suffer a concerted loss of information about economic and governance processes, together with the skilled human resources needed to realize ambitious state goals.

Re-industrialization, said Blyth, “[will] effectively kill your current consumption-based growth model unless you turn inwards, focus on tariffs and the home market, and double down on what I call carbon-led growth…

“It’s basically about lowering the cost of electricity right across the board… and indirectly subsidizing the business model in the Republican states: farms, fuel, fertilizer, food.”

In terms of green technology, the U.S. is already at a disadvantage to China, which dominates that market. “You’re never going to compete with Chinese solar… The idea that the United States would manufacture this stuff is just ludicrous,” he said.

Increasing investment in productive capacity would, moreover, require a financial transactions tax to restrict holders of U.S. assets. “And that’s a tough one to sell on Wall Street,” he commented.

Decarbonization sparks resistance and an effort to favor carbon in the short-term

Climate denialism in the U.S. is driven in large part by a group of states whose economies are carbon-dependent and whose assets would be rendered worthless by a green energy transition, said Blyth.

“The oil shocks in the ‘70s and the shift to services and outsourcing in the '80s and '90s concentrated carbon assets in specific states,” said the political scientist, who included Alaska, North Dakota, South Dakota, Kansas, Oklahoma, Texas and West Virginia in that group.

The political stakes in decarbonizing the U.S. economy are thus stark. States whose economies are carbon-dependent (that is, dependent on oil and gas, fracking, fertilizer production, plastics production) see green energy as an existential threat, explained Blyth.

Fertilizer factory. (Photo: The Cosmonaut courtesy of Wikimedia Commons; cropped. CC-BY-SA 2.5 CA.

“When you say ‘Green New Deal,’ what you’re basically saying is your assets go to zero. So the notion that we can manage this transition [is] going to make [carbon-dependent] states rather nervous. Because the last big transition we managed was the Midwest and we managed that one into the grave,” he continued, referring to the devastation of manufacturing capacity and well-paying jobs that followed the free trade agreements of the 1990s and 2000s.

“The growth rate doesn’t matter if it makes your assets redundant — you lose it. And then you lose basically 20–30% of your state-level GDP,” commented Blyth.

“Of the top-10 largest announced clean energy manufacturing investments following the Inflation Reduction Act (IRA), nine fell in states that voted GOP … by less than a 1-percent margin in 2020,” he continued.

“So [decarbonization] becomes doubly existential. It’s not just the assets, it’s your ability to protect those assets in national politics, because everything is decided by a 1–2% margin… Which is why the IRA is going to be defunded despite non-carbon interests in GOP states. It’s simply not worth the rest of [their] habit.”

In his view, the Trump administration is “moving at breathtaking speed” to implement a strategy of carbon dominance, that is, stranding green assets through policy.

“In a highly polarized world,” explained Blyth, “you no longer need an encompassing [electoral] coalition… You just need a minimum-win coalition that takes in your people and just enough to win and polarize, demobilize, keep people out, lower the number of people who are voting. Get the contestations level down and you can win.”

Carbon asset holders are also seeking to strand green assets through coordinated action, such as using the American Legislative Exchange Council, or ALEC, to push legislation to prevent state pensions from investing in firms based on environmental, social and governance (ESG) performance.

Although a carbon-dominant economy would be enormously profitable in the short-term, observed Blyth, it would leave the U.S. even further behind in a world where China, India and Indonesia are quickly shifting to green energy.

“[Y]ou can deny, you can delay, you can protect your local business model. But is it really going to matter if the rest of the world continues to [de-carbonize]?” asked the speaker.

China, which already dominates green technology supply chains, “install[s] more solar each year than the rest of the world combined… Double down on carbon [and] you’re losing your relevance,” commented Blyth.

Meanwhile, the EU is likely to renew close relations with China because its preferential security and trading arrangements with the U.S. are both under threat. “Aggressive U.S. policy on China and tariffs on Europe [will] push the EU together with China and green investments globally in the long term,” said the speaker.

Finally, noted Blyth, the U.S. will face oil- and gas-producing competitors in the short-term, including Guyana and Indonesia.

Long-term outlook

In Blyth’s opinion, success of a carbon-dominant policy in the U.S. will be short-lived, perhaps two election cycles. Some 10 years from now, he said oil demand could collapse, re-industrialization could fail and the U.S. could remain “a carbon-commodity producer in a post-carbon world.

“The U.S. risks becoming depending on green tech made elsewhere once the party’s over,” he said. “If you do this policy, there’s no soft landing. You’re accelerating toward the redundancy of the dollar.”

One alternative for the U.S. would be to invest in “what it’s good at”: developing breakthrough technologies, such a deep boring technology at pressure and small nuclear reactors.

Unfortunately, said Blyth, the weakening of state capacity under decades of Republican Party assault, and the Democratic Party’s reluctance to embrace nuclear energy, will make it difficult to launch the kind of government investments needed to achieve technological breakthroughs.

Published: Friday, May 23, 2025