Burning Down the House

The US domestic politics and geopolitics of the green transition: an interview with Mark Blyth

I’m driving back to the hotel after the conference dinner and Mark Blyth in the passenger seat is pointing energetically, urging me to make the left turn in his Scottish lilt, “Go! Go!”

I’m thinking, who is this dude?, and during the conference I found out. Although I was not interested in his commentary about making a left turn in a dark Wellesley suburb while being blinded by oncoming headlights, I soon realized that I wanted to hear pretty much anything else he had to say.

Mark Blyth teaches at Brown University, where he is the William R. Rhodes ‘57 Professor of International Economics. He also directs the Rhodes Center for International Economics and Finance at Brown’s Watson Institute. A political economist known for asking why people keep believing bad economic ideas in the teeth of the evidence, he is the author of many prominent books that include Inflation: A Guide for Users and Losers (with Nicolò Fraccaroli, 2025), and Angrynomics (with Eric Lonergan, 2020). His new book project is entitled Burning Down the House: Carbon Politics, American Power, and the Almighty Dollar.

In 2016 Blyth coined the term “Global Trumpism”—the argument that Trump, Brexit, and the broader populist revolt were symptoms of macroeconomic story thirty years in the making. He has a record of calling outcomes early that the consensus got wrong, from the failure of European austerity to the victories of Brexit and Trump. If you haven’t heard him on a podcast before, look him up as he is, reliably, one of the most interesting and entertaining academics around.

In this conversation, Blyth lays out the argument that American power for the last thirty-five years has rested less on what the United States makes than on the dollar system—a global merry-go-round in which the world sells America goods, piles up dollars it doesn’t really want, and lends them back by financing American debt—and that Washington is now dismantling the very arrangement that underwrote its dominance.

From there Blyth turns to oil, the “carbon coalition” in U.S. politics, and the strategic gamble of pursuing continued carbon dominance at the exact moment China is racing toward the technologies of the future. We explore the argument that going green weakens U.S. hegemony and trades dependence on oil for dependence on Beijing—and discuss whether Trump’s clinging to a carbon economy has a coherent theory of victory, or whether an inevitable green transition means the party of U.S. hegemony is pretty much over.

–Jennifer Lind

Photo: Jonathan Borba

The Dollar System

JL: You have a memorable way of describing the global economy as a merry-go-round: countries sell goods to the United States, get dollars they don’t really want, and lend those dollars back to us by buying US debt. Can you walk us through that cycle, and explain why it’s enabled Americans to consume and borrow far beyond we actually produce?

MB: Before I start let me apologize for the ‘turn left’ in the car comments. I just couldn’t figure out why you were not turning left. Sorry.

JL: No problem. We clearly got past it.

MB: Second, some background for the reader. We met at a workshop discussing the adequacy of IR theory to explain the current moment. Most of our colleagues took that to mean the following. How can a country as pure and lovely and well-meaning as the US produce a monster like Trump? And if it could produce such a monster, that shows IR theory is bunk. I’m quite willing to accept IR theory as being largely bunk and entered the conversation with that prior. But as the day wore on I got less concerned with the minor piano chords crashing in the background as Trump’s name was uttered and the general pearl clutching that went on and came round to thinking that maybe IR theory has a good handle on all this after all.

What, I think both of us reacted to was the notion that if mainstream IR theory can’t explain how Trump appeared, then all Trump outcomes are random: that there is no plan. It’s just the whims of the dictator. But I don’t think that’s right and neither do you. What the Trump administration is doing is to me quite explicable and expected if you think of the US as a declining hegemonic power with dollar-induced Dutch disease.

JL: Quick interjection, because this is really interesting. ‘Dutch Disease’ is when a natural-resource boom (e.g., oil or gas) actually harms a country’s broader economy. The resource windfall drives up the currency’s value, which makes the country’s other exports—especially manufacturing—less competitive abroad. And the booming sector absorbs labor and capital. The result is a withered manufacturing base and overdependence on a single (often volatile) commodity. The name comes from the Netherlands’ 1960s natural gas boom, which coincided with a decline in Dutch manufacturing.

MB: Yes, let me explain what I mean by dollar-induced Dutch disease.

The US has a trick it can play that relies on no one else being able to play it. It has no current account constraint. Really. It doesn’t. Normal countries (everyone else) need to pay for their imports with exports, at least over the long run. The US does not. Why? Because of the huge amount of USD credit generated outside of the US by non-US banks and other financial firms, and because the rest of the world (China, the rest of East Asia and the EU) all run export surpluses against the US.

To pay for those imports the United States (OK, US firms that do the imports) send dollars to the folks making the exports. But those folks have a problem. If they take those dollars and turn them into their local currency and hand them out to the workers making those exports their wages would rise, costs will go up, and those exports would be less competitive.

So those exporting countries do two things. They repress domestic consumption and they send those dollar earnings abroad. Why? Because they now have an asset-liability mismatch on their banking book and need to turn the liability (foreign cash) into an asset.

So how do you do that? Well, for a long time the easiest thing to do was to send those dollars back to the US (literally, hand the money back) by buying a Treasury bill with it. That lowered US interest rates and encouraged us to consume (import) more, while the exporters built up more USD assets as reserves on the other side of the trade. Rather than ‘China owns the US,’ China was bankrolling endless US consumption, as was the EU and East Asia in general. This was a great deal. The US got TVs and computers and meds and cars and the exporters got bits of digital paper bearing 2 to 3% that we can print an endless amount of.

But it turned out that the deal had some costs. Like a country that strikes oil, demand for your currency shoots up in such a world, which along with all those imports flooding your market, stresses your own manufacturers. And after 20 years of this you hollow out and forget how to make things. That’s dollar-induced Dutch disease. Yes, the deindustrialization of the US and elsewhere was driven by capital substituting for labor at the margin, but it was especially hurtful in the US.

The US gutted its manufacturing capacities in the Midwest and Southeast through import competition and a huge spike in interpersonal and interregional inequality––and MAGA was the result. The dollar gave the US a form of Dutch disease where the dollar was the commodity that eased the current account and erased the ability of the US to do broad spectrum manufacturing. Props to Brendan Greeley and Mark Schwartz for this argument. It’s really theirs. I’m just riffing off it. But that was the secret of US power. It was the only country that had no current account constraint. But the cost was to hollow out its domestic manufacturing capacity.

JL: Can you say more about this – after all, the US is still a major manufacturer. Where do you see vulnerability in practical terms — what can’t the US do for itself anymore?

MB: When the Biden Administration’s Inflation Reduction Act got up and running it was based upon tax credits that Tim Sahay likened to “bottomless Mimosas.” You want to open up a battery factory? You get a tax credit. You employ displaced labor in the battery factory – you get a tax credit. So companies from the US and abroad fell over themselves to invest in the US in green tech, knowing that in some cases over half their costs would be covered.

But there was a problem. When you haven’t made things for two decades because you have been importing them, you don’t know how to make them anymore. And what you did know how to do is twenty years out of date. And the labor that made those things twenty years ago is long gone. And the firms taking those tax credits soon began to find that yes, you could build a battery factory in Kansas. But you couldn’t find the skilled labor you need to actually run it in Kansas. And yes, Americans want more manufacturing jobs – eighty percent of them in fact. But only 25 percent would want to do the work themselves. And according to the last NAEP study on math performance, US 12^th graders math skills continue to decline. And there is a huge shortage of skilled trades. And when China is ahead in 66 of 74 critical technologies according the Australians who track these things, then you can have a large manufacturing based in weapons and aircraft and cars. But that does not translate into sectors that you either forgot or never knew how to do.

JL: If the dollar system has been so good for the United States, why would Washington want to walk away from it now —what do you mean when you’ve said the dollar is being “disowned”?

MB: Let’s say that the view I am putting out here is remotely plausible: that the US is damned if it does and damned if it doesn’t. If the US continues to allow massive foreign holdings of Treasuries we get to continue to import everything basically for free. But if we do that we drop further and further behind the exporters and end up even more hollowed out.

If you want to do something about that, what might you do? Tariffs? Export restrictions? A preference for domestic firms? Yes. And who did all that? Joe Biden. He added to Trump’s tariffs and doubled down on green investment. Trump is that same, except the green is being disowned and a strategy of carbon dominance is being adopted instead

JL: It looks like it’s not just Washington “disowning” the system – that demand for U.S. treasuries is falling as central banks diversify their holdings of currencies. The Economist argued, “Foreign central banks have become more hesitant to invest in Treasuries after witnessing the freezing of the Russian central bank’s foreign assets in the wake of Russia’s invasion of Ukraine” – that in this move Washington “crossed a Rubicon.” What’s your view on this trend, and what are its implications?

MB: I think this is important but not significant. The global dollar is not the property of the US. For every $100 made in the US, $70 of USD credit is made in London, Singapore and a host of other places. Why? Because it’s easier for Malaysia and India to trade in USD than in each other’s currencies due to volatility and clearance issues, and so they do. And all those exporters still like their dollar reserves for that reason as well as the ‘savings asset’ reason. The USD is the only globally accepted currency that is deep and liquid enough that any individual trade, even by China, does not move the market. And everyone likes that.

So, you can have a bit of diversification. You can have alternative clearance mechanisms. But unless the Germans suddenly become massive importers (necessary to get Euros out in the system at scale) or China opens up its capital controls (which they will not for reasons of control) what you’re describing is important in that it marks a new trend, but it’s not significant as a change of the system. Same with sanctions. Annoying but survivable. Ask the Iranians.

Photo by Janusz Walczak

The Carbon Economy vs Green Economy

JL: Let’s bring in energy. Liberals praise Joe Biden’s administration for investing in green energy, and lament Trump’s doubling down on the carbon economy. But in your view there’s much more going on here than “Biden was committed to addressing climate change and Trump is a climate denier.”

You argue that climate denial in the US isn’t really about science — it’s about money, geography, and politics. Can you explain, in other words, what you mean by a “carbon coalition” in US politics?

MB: Sure. So what is a declining hegemon to do? Well, what is the US play to keep up with China?

Sanctions? Tariffs? Small yard and a high fence? They innovate right around all of it.

Compete on green tech? Biden tried it and if the Democrats were still in power we would probably be trying to improve skills to make that happen.

But there is another way. Go with the US real comparative advantage, which is energy. Electrical power in the EU costs 2 to 4 times what it costs in the United States based upon almost limitless LNG and oil. The ‘carbon coalition’ are those core Republican states that have carbon-heavy growth models (from Alaska to Texas to Mississippi to West Virginia), with fuels, farms, fertilizer, food, feedstocks, plastics, petrochemicals, coal, mining, etc. Think about the fact that the IRA’s promise was the devaluation of their assets, as Jeff Colgan and others have argued.

So this is a fight between two viable growth models. One, based on carbon, sees the IRA and decarbonization as a mortal threat. And one, based on post-carbon sources of electricity, wants to ‘help’ the carbon-heavy states ‘transit’ to green jobs and investment.

The problem is the carbon states don’t trust the green states to not turn them into the next Midwest and the blue states lack the capacity to pull off the transition that they want to but will try anyways. The fight in the US today between the two growth models is playing in everything from anti-ESG and wind power legislation to the massive carbon riders attached to US tariff deals.

JL: You describe the Trump administration as pursuing an intentional push for “carbon dominance.” What does that strategy look like in practice, and who benefits and loses in the short term?

MB: At the Turnberry Agreement where the EU bent the knee to Trump over a year ago, the EU ‘won’ by getting a 15 percent tariff. Forget that. Far more importantly, look at the $750 billion it promised to import in US LNG and oil. Look at the $500 billion that Japan promised in energy investments and imports. Look at the $150 billion South Korea promised. Consider that US LNG imports to the EU have increased fourfold since 2022 and could rise to 80 percent of the total by 2030. Tariff deals are a distraction from where the real action is, which is tying allies down to import more carbon.

Ask yourself what happens when an aggressive imperialist hegemon has one chip left to play. (One might ask, is AI dominance another chip, but in my opinion that is not going to work for the simple reason that the Chinese, as usual, will give the world their AI, which is 90 percent as good, for free). So the hegemon’s one chip to play is tying folks into carbon dependencies, and you can see where we are.

We can see why Venezuela happened. Not because it was an easy win but because Venezuela was around eight percent of China’s oil supply. And was can see why the US war against Iran is not just about Israel — Venezuela + Iran were close to 30 percent of China’s oil imports. It’s the 1930’s oil spigot all over again: Roosevelt’s policy of controlling the Japanese by restricting their access to oil. This time around China chokes your rare earths, you choke their oil, and tie everyone else into long term oil and gas deals that halt their transitions. That is carbon dominance.

JL: How much of a future can carbon dominance have? Does the Trump administration have a long game when it comes to energy? If we assume that there is a logic here – which Trump’s critics loudly dispute – I see two possibilities.

• The first is that the Trump administration believes a green transition can be avoided: that the U.S. should thus sustain the domestic carbon coalition and the global fossil fuel economy. In this view, the administration has a theory that the green transition won’t occur or perhaps will be overtaken by a subsequent energy revolution.

• A second possibility is that the Trump administration believes that a green transition is inevitable, but that in the interim the US should sustain the fossil fuel economy as long as it can – because, even if you think the party’s over, propping up the carbon economy gets the GOP elected by the domestic carbon coalition, and sustains U.S. global dominance for as long as possible.

Which of those views do you think the Trump administration actually holds? Is there a compelling theory of victory here for U.S. hegemony, or is the party over?

MB: Why choose? They are not alternatives. They are better and worse versions of the same game – carbon dominance. And if the Democrats come back in, not all that much changes. US automakers spent hundreds of millions on the transition to EVs only for their own state to devalue their investments. Next time the Democrats come back in and try IRA 2, I strongly suspect the key firms will be ‘once bitten twice shy’ about the whole thing.

JL: Liberals emphasize a dire climate threat and praise Joe Biden’s push toward green technologies. But conservatives argue that shifting toward a green economy would be a disastrous mistake: ceding U.S. hegemony and worse, putting U.S. prosperity in the hands of a strategic rival, China. The Europeans made this calamitous decision when they shut down their nuclear plants and embraced dependence on Russian gas. Can you explain the argument that a green transition makes the United States vulnerable to China?

MB: That is pretty much why the US is doing what its doing. And from that point of view it makes some kind of sense. But geopolitics aside, ultimately the United States has to deal with the climate crisis. It’s not immune to warming. US insurance markets are close to breaking point due to climate damage. It’s in a multi-decade climate fueled drought that is pushing up food prices. Climate breakdowns elsewhere are fueling the migration crisis that it is trying to control. There is only one global carbon budget and we are tearing through it as fast as possible. As such, the notion that geopolitical vulnerabilities should drive our policy is really weird for me to get my head around. We are literally burning down the house and the US is worried about the neighbors having a better BBQ.

Photo by Pixabay

JL: While the US clings to carbon dominance, you point out that China, India, Indonesia, and others are racing in the opposite direction. What are the key technologies of the green economy; how dominant is China in them; and why do you think the US just can’t catch up?

MB: Because you need scale. You need massive manufacturing scale to do so. And the US hollowed that out. China has planet-altering capacity. Every single year China drops the equivalent of the French electricity grid into its power stack, mainly with renewables, and now with batteries. The US is nowhere with batteries, which solve the critical latency problem of solar and wind. You need engineers and skilled workers. Millions of them. You need subsidized capital, directed investment, state-backed venture capital funds and a central bank that underwrites all these investments. The US not only lacks such things, it is ideologically allergic to such things. It’s simply not in the same game. Yes, the US picking up batteries, mainly by importing Korean firms. Yes, it’s picking up more high-tech manufacturing. But its light years away from Chinese capacity and scale.

JL: You suggest the Trump administration’s emphasis on the carbon economy could end up pushing Europe closer to China. How might that realignment unfold, and what would it mean for America’s place in the world?

MB: The EU is internally divided and stuck between a carbon hegemon that publicly disparages, if not despises them, and a global manufacturing powerhouse that is gunning for its core industries.

It’s 40 degrees in the whole of France today as I write. It has been that way for a week. This is the second heatwave of the summer and it’s not even July. Europe is baking. Drying out. Burning. It knows it has to work on decarbonization, and the US wants to block it. China does not. China will in fact give them all the green hard tech they need to do so. But they want to make their own. So what happens? Joint ventures with Chinese firms. But this time with the EU and its firms as the junior partner in software, batteries and AI. They will talk a good game of tariffs but the EU is even more dependent on China than it is on the US. So they will ultimately get closer to China.

JL: If we assume that the green transition is inevitable, you’ve said that the US becomes “a carbon-commodity producer in a post-carbon world.” Can you paint a picture of what that future actually looks like for the United States’s global power and influence? And for ordinary Americans?

MB: The path is already clear. The US will be building and driving $80k Ford F150s as the rest of the world loads up on $25k Chinese and Chinese/Euro electric vehicles. The US will exist as a carbon empire from Greenland to Chile running its own energy, tech and standards stacks. The rest of the world will take the Chinese tech and end up in their stacks. “Petrostates versus electrostates” is the jargon. The Chinese control East Asia. India is their main rival. The US and China find a modus vivendi. The EU sits in the middle shuffling more towards China over time.

JL: You write that you do see an alternative path — betting on what America is genuinely good at, like breakthrough technologies. What would it take for the US to choose that road instead, and what’s standing in the way?

MB: What the US is really good at is financial engineering and financing frontier tech. The US doesn’t, and indeed should not, do wind and panels. Buy it from elsewhere and get the benefits. It should be doing massive investment into mini nuclear tech, into deep thermal, into fusion, into gas regeneration and recycling and carbon capture and storage at scale. Instead we are doubling down on coal and chucking everything at a technology (AI) that, if it works, will produce mass unemployment in an already fractured and unequal world. What’s standing in the way is hubris and a strange inability to see that this strategy is self-defeating.

JL: Many thanks, Mark, for contributing to Blue Blaze. We look forward to reading your new book when it’s out: Burning Down the House: Carbon Politics, American Power, and the Almighty Dollar. And meanwhile, check out Mark’s podcast at the William R. Rhodes Center for International Economics and Finance.