Unravelling of Dollar Hegemony: With Capitalism’s Crisis Comes China’s Quiet Revolution
Anubhav Singh
Donald Trump’s tariffs have plunged the world economy into chaos, unleashing a trade war with China that seems to have no resolution in sight. Commentators struggle to fathom the rationale behind a move that resembles economic self-sabotage. Yet this is not the first time the United States has dismantled an economic architecture it once built – only to restructure global capitalism on new, favourable terms.
The collapse of Bretton Woods in 1971 marked the last great upheaval, when Nixon ended dollar-gold convertibility, unshackling finance capital while eroding the foundations of postwar stability. Why does America repeatedly destabilise systems it once championed? And why is China, the supposed beneficiary of US-led globalisation, now the target of America’s economic wrath?
The answer lies in the structural contradictions Marx identified within capitalism – here manifesting as a fatal flaw in the dollar-dominated global reserve system, one that has now reached its crisis point.
The rise and fall of Bretton Woods: A system built on contradictions
Conceived in 1944, the Bretton Woods System was ostensibly designed to stabilise the postwar global economy, but in reality, it marked a paradigmatic shift from British to American hegemony. The system anchored all major currencies to the U.S. dollar, which itself was convertible to gold at USD 35 an ounce, effectively making the dollar the reserve currency of the world.
It created a framework for predictable exchange rates, controlled capital movements, and a mix of free trade with domestic welfare policies. The system’s "embedded liberalism" allowed Western states to pursue full employment and welfare policies – but only within a neo-colonial division of labour that relegated the Global South to raw material extraction. The IMF and World Bank enforced this hierarchy, offering reconstruction loans to Europe while imposing austerity on postcolonial nations, locking them into dependency.
Yet by the 1960s, the system’s contradictions erupted. As Marx predicted, capitalism’s need for expansion clashed with its institutional constraints.
The US, financing imperial overreach (Vietnam) and domestic consumption through deficits, flooded the world with dollars. Foreign governments, led by de Gaulle’s France, began demanding gold in exchange, exposing the Triffin Dilemma: the dollar could not simultaneously serve as the world’s reserve currency and maintain its value.
Nixon’s 1971 suspension of convertibility was not a temporary fix but a capitulation to capitalism’s crisis tendencies – a pattern repeating today.
Neoliberalism’s false fix: Financialisation and the Rust Belt revolt
The post-Bretton Woods order replaced gold with petrodollar recycling and financialisation. With the 1974 US-Saudi pact, oil was priced in dollars, forcing global demand for American Treasuries and enabling endless deficits. But this “spatial fix” merely displaced the crisis. The strong dollar gutted U.S. manufacturing, outsourcing production to Asia while Wall Street profited from speculation. By the 2000s, deindustrialisation had birthed the Rust Belt’s ruins – and the populist fury that Trump harnessed.
Ironically, China – and not the US – became neoliberalism’s greatest success. While the West dealt with Rodrik’s trilemma, i.e. maintaining a balance between sovereignty, democratic politics and deep economic globalisation, China engaged with neoliberalism on its own terms through state-directed investment, keeping the yuan devalued and controlled capital flows, it emerged as the "workshop of the world" without surrendering to Western-style deregulation.
When the 2008 crisis exposed the rot in Anglo-American finance, China doubled down on its model, leveraging its American Treasury holdings to shield itself while expanding alternatives to dollar hegemony. Thus, the dollar’s reserve status – dependent on US’s economic and military dominance, trust in its bond market and economic stability, had a challenger for the first time since the second World War.
The emergence of right-wing populism in America, Europe and the developing world, i.e. in India and Brazil, wasn’t an aberration but the result of the systemic crisis of capitalism which eroded national sovereignty, destroyed the working class and increased intra state inequality, allowing authoritarian leaders to ride the wave of popular discontent to power.
Rewriting the rules
Trump’s tariffs, ostensibly aimed at reviving manufacturing, ignore the structural realities of the dollar system. The US cannot simultaneously:
- Run deficits to sustain global dollar liquidity (as the Triffin Dilemma demands),
- Protect domestic industry through tariffs (which raise consumer costs and invite retaliation), and
- Preserve financial hegemony (as China dedollarises via BRICS, petroyuan, and Belt and Road Initiative).
The trade war’s futility mirrors the 1930s Smoot-Hawley debacle: supply chains have simply rerouted to Vietnam and Mexico, while China retaliates asymmetrically by weaponising rare earths and accelerating yuan internationalisation and exporting its model of development to the Global South through its Belt and Road Initiative. Trump’s war on education and skilled labour in name of fighting illegal immigration will ensure that China becomes the direct beneficiary of attracting the best minds in the domains of artificial intelligence, science and technology ensuring its decoupling from Western technology as is evidenced by its rapid strides in chip fabrication despite crippling American sanctions.
If Trump continues down this path of imposing tariffs and firing thousands of federal workers, discouraging skilled immigration then not only does stagflation become imminent as tariffs act – as with regressive taxes, the Fed’s rate hikes risk recession – but also decline of American R&D in the long term.
China’s response reveals a long-game strategy to dismantle dollar supremacy without direct confrontation:
- Petroyuan: Since 2018, 20% of China’s oil imports have been priced in yuan, backed by gold-convertible contracts (Hudson, 2023). A Saudi shift would cripple petrodollar recycling.
- Currency Swaps: USD 500+ billion in bilateral swaps (PBOC, 2023) enable trade without dollars.
China’s endgame is not a yuan-dominated world but a multipolar monetary order where the dollar is "first among equals” in a basket of reserves. BRI infrastructure diplomacy and BRICS+ expansion are building the institutional scaffolding for this transition.
The only way forward for both the US and China would be to agree to a calibrated depreciation of the dollar and the appreciation of the Yuan while ending the trade war. It would allow the US to control deficits, boost manufacturing, increase state intervention in the economy through welfare spending while doing away with its regressive taxation system, and reinforce trust in its economic policies.
Other Central Banks would slowly reduce their dollar holdings, leading to a multi-currency world where the dollar is still an important player but not the reserve currency. Any other outcome of this trade war would be catastrophic, unleashing a huge global recession.
Capitalism’s crisis, again
Trump’s tariffs are not an aberration but the latest convulsion of a system Marx foresaw as self-devouring. Just as Bretton Woods collapsed under its contradictions, neoliberalism’s financialised order is fracturing with China offering an alternative state-led development model.
The question is whether this transition sparks revolution or barbarism. As in 1971, America’s unipolar moment is ending not with a bang, but with the slow-motion erosion of the very system it created and quite possibly its economic hegemony.
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