U.S. economist Richard Wolff has warned that the global role of the U.S. dollar is in “mid-stage decline,” accelerated by geopolitical tensions, trade wars, and the economic rise of China and other emerging powers. Speaking in a recent interview, Wolff said that without a coordinated industrial policy, Washington’s reliance on tariffs, sanctions, and political pressure risks triggering stagflation — stagnant growth combined with persistent inflation — as soon as late 2025.
Dollar Dominance Under Pressure
The U.S. dollar became the world’s primary reserve currency after World War II, replacing the British pound. This dominance was cemented in 1944 at the Bretton Woods conference, where global currencies were pegged to the dollar, which in turn was backed by gold.
At that time, the United States produced nearly half of all globally traded goods, controlled vast gold reserves, and enjoyed unmatched military and economic influence. But Wolff says history shows no currency maintains global dominance indefinitely.
“The decline began decades ago,” Wolff explained. “By the 1960s, foreign governments were already exchanging dollars for gold. Nixon’s 1971 decision to cut the dollar’s tie to gold was a short-term fix — not a permanent solution.”
Since then, globalization, outsourcing, and the rise of competing economies have chipped away at the dollar’s role.
China and India Shift the Balance
Two developments, Wolff said, have accelerated the dollar’s erosion in recent years:
- Rapid economic growth in China and India
These countries have climbed the industrial and technological ladder faster than many predicted, increasing their global market share. - The Ukraine conflict and BRICS expansion
Western sanctions on Russia have pushed BRICS nations — Brazil, Russia, India, China, and South Africa — to develop alternative payment systems and trade in local currencies.
Official data shows that China has sold more than $300 billion in U.S. Treasury bonds over the past decade. Meanwhile, several countries have signed bilateral agreements to settle trade in yuan, rupees, or other currencies, bypassing the dollar entirely.
Chinese Exports Adapt to U.S. Tariffs
Wolff highlighted Chinese export data that reveals an important shift: while sales to the United States have fallen due to tariffs, exports to other markets — particularly in Asia — have risen enough to more than offset the decline.
“This is the path forward for countries facing U.S. trade pressure,” Wolff said. “They diversify their markets. In the short term, it reduces the impact of U.S. tariffs and sanctions.”
This adaptation, he noted, could lead to deflationary pressures in the global south as surplus goods are redirected to new markets, while U.S. consumers face higher prices from restricted imports.
Tariffs Without Strategy Could Backfire
Former President Donald Trump’s approach to trade policy has included steep tariffs on imports, such as a 100% tariff on Chinese electric vehicles. Wolff argues that without a broader industrial strategy, such measures are unlikely to achieve their intended goals.
“Without an industrial policy, tariffs are a blunt instrument,” Wolff said. “They might save jobs in one sector while raising costs for the rest of the economy.”
For example, U.S. businesses are now unable to access low-cost, high-quality Chinese EVs available in European markets, potentially putting American companies at a competitive disadvantage.
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Wolff said that inside the United States, economic inequality, political polarization, and declining trust in institutions are reaching dangerous levels. These conditions, he argued, mirror the late-stage decline of past global powers.
The economist stopped short of calling the U.S. a fascist state, but warned that political alliances and divisive rhetoric — such as Trump’s close ties with foreign leaders like Israel’s Benjamin Netanyahu — risk deepening internal fractures.
Europe’s Parallel Struggle
Wolff believes Europe is also facing a strategic crossroads. Post-World War II, Europe’s stability depended on two pillars: U.S.-led NATO for security and the European Community (later the EU) for economic integration.
Today, both pillars are under strain. The EU’s reliance on U.S. foreign policy, coupled with energy and trade challenges, has weakened its competitive position.
“Europe is rich and large enough to chart its own course,” Wolff said. “But it must unify politically and economically while reducing dependency on Washington.”
Stagflation Warning for Late 2025
Economic indicators in the U.S. are already showing warning signs, Wolff noted. Job growth data has been revised downward in recent months, while tariffs and supply chain disruptions are contributing to higher consumer prices.
This combination — slowing economic growth and rising prices — is what economists call stagflation. Historically rare and difficult to combat, stagflation can undermine consumer spending, corporate investment, and public confidence.
Wolff’s forecast: if current trade and monetary policies continue, stagflation could emerge in the second half of 2025, coinciding with peak consumer spending seasons and potentially impacting the 2026 economic outlook.
Key Takeaways
- Dollar Decline: A long-term trend now accelerating due to China and India’s growth and geopolitical shifts.
- Tariff Risks: Without coordinated industrial policy, tariffs could harm more sectors than they help.
- Domestic Divisions: Inequality and political polarization mirror past imperial declines.
- European Dependency: EU’s strategic reliance on the U.S. limits its recovery options.
- Stagflation Threat: Rising prices and slowing growth could hit the U.S. by late 2025.
FAQs: Dollar Decline and U.S. Stagflation Risk
1. What does Richard Wolff mean by “mid-stage decline” of the U.S. dollar?
Wolff uses the term “mid-stage decline” to describe a process in which the U.S. dollar is losing its global dominance as the world’s primary reserve currency. This shift has been gradual since the 1960s but is now accelerating due to the rise of China, India, and other emerging markets, as well as geopolitical changes such as the expansion of BRICS.
2. How are tariffs affecting the U.S. economy?
According to Wolff, tariffs without an accompanying industrial policy are a “blunt instrument.” While they can protect certain industries from foreign competition, they can also raise costs for businesses and consumers, making the wider economy less competitive.
3. Why does Wolff believe stagflation is a risk in 2025?
Wolff points to slowing job growth, revised downward employment figures, and rising consumer prices due to tariffs and supply chain issues. The combination of slow economic growth and persistent inflation — stagflation — could emerge in the second half of 2025.
4. What role is China playing in this economic shift?
China has reduced exports to the U.S. because of tariffs but increased exports to other markets, particularly in Asia. This diversification weakens the impact of U.S. trade measures and may lead to deflationary pressures abroad while contributing to inflation at home.
