President-elect Donald Trump took to Truth Social over the weekend and threatened to impose 100% tariffs on a group of emerging markets if they continued their de-dollarization campaign. The subject of BRICS, a nine-nation coalition headlined by Brazil, Russia, India, China, and South Africa, has become more prevalent under the current administration thanks to the bloc's efforts to abandon the greenback. But are these concerns overblown? Many economists believe so.
Trump Tosses Tariff Bricks at BRICS
The incoming president has been one of the few major domestic leaders to discuss BRICS and the organization’s role in potentially shunning the US dollar. His latest pro-tariff, pro-dollar social media post vowed to implement a 100% levy on the countries looking to exit the US dollar.
Trump wrote in a Nov. 30 social media post:
"The idea that the BRICS Countries are trying to move away from the Dollar while we stand by and watch is over. We require a commitment from these Countries that they will neither create a new BRICS Currency, nor back any other Currency to replace the mighty U.S. Dollar or, they will face 100% Tariffs, and should expect to say goodbye to selling into the wonderful U.S. Economy."
He added: "They can go find another 'sucker!'"
This comes two months after his famous Economic Club of Chicago appearance with Bloomberg News, where he stated he would slap tariffs on countries that wave goodbye to the good old buck. The president-elect warned that the United States could plummet to "third-world status" if it lost its dollar hegemony because of how President Joe Biden and his team were running the country. He told John Micklethwait, Bloomberg News editor-in-chief:
“If a country tells me, ‘Sir, we like you very much, but we’re going to no longer adhere to being in the reserve currency. We’re not going to salute the dollar anymore.’ I’ll say, ‘That’s OK, and you’re going to pay a 100 percent tariff on everything you sell into the United States, and we love your product. I hope you sell a lot of it into the United States, but you’re going to pay 100 percent tariff.’ He will then follow it up by saying, ‘Sir, it would be an honor to stay with the reserve currency.’”
Russia soon responded to the trade threat. Kremlin spokesperson Dmitry Peskov told reporters, according to Reuters, that this economic measure could strengthen the de-dollarization push as more countries abandon the greenback.
India, staying mum on the issue, saw its rupee plummet during the Dec. 2 trading session. The rupee cratered to a fresh record low against the dollar, driven by both the threat of the Trump tariffs and weaker-than-expected economic growth in the third quarter. The Russian ruble was still in freefall as the currency remained worth less than a penny. The Chinese yuan continues to struggle amid economic pressures, while the Brazilian real tumbled more than 1%. The South African rand pared its year-to-date gains.
But while political analysts and the financial markets duck for cover from Trump’s tariff weapon, are fears over BRICS’ anti-dollar crusade justified? For now, most likely not.
Passing the Buck
The de-dollarization campaign has been a more than decade-long affair championed by Russia and China. Following Moscow’s invasion of Ukraine, the US-led West imposed fierce economic and financial sanctions on Russia and Kremlin officials. Since then, the United States and its allies have effectively obliterated Moscow from global financial markets and exploited its frozen assets. As a result, the anti-dollar movement has gained steam, fearing that the West could implement a plethora of penalties over anything these countries disapprove of – politically or economically. Therefore, the BRICS partners hoped to launch an alternative platform, either a SWIFT substitute or another currency, as reported in The Daily Caller.
But while BRICS has generated membership interest – expanding to include Egypt, Ethiopia, Iran, and the United Arab Emirates – and has sought to build upon its efforts by settling bilateral trade in local currencies and establishing a grain reserve, economic observers are skeptical that the bloc could oust the dollar from its throne anytime soon.
Despite America’s political upheaval and economic challenges, it is still a beacon of prosperity on the world stage. Even after losing 20% of its purchasing power over the last few years, the US dollar appeals to global investors. Here are some fascinating data points to digest: Foreign investors hold a record $8.7 trillion in Treasury securities, the greenback represents 88% of all international transactions, and the buck accounts for approximately 60% of global foreign exchange reserves. This is not exactly a model of a dying currency.
How does this compare with the currencies of the BRICS members? In addition to the pressures in global FX markets, they are struggling to rival the US dollar, though they are incrementally chipping away at its dominance. The Chinese yuan, for example, maintains a 3% share of worldwide transactions. Within the trading alliance, the numbers would make David laugh in his fight with Goliath. Internal BRICS trade represents roughly 1% of international trade. Even as a share of global reserves, BRICS accounts for around 5%.
And then it is vital to consider organizational strife. The egos and totalitarian instincts of Xi Jinping and Vladimir Putin would, of course, lead to disputes about how to manage BRICS, what currency to maintain a higher percentage of in any reserve framework, and where to headquarter the group. Remember, Putin did not even want to expand BRICS out of fear that it would deteriorate the entity’s initial objective of avoiding adding anyone and everyone to the new kids on the block. This was Xi’s idea, according to various media reports.
BRICS Street’s Back, All Right
It is not all doom and gloom for BRICS. It has about half of the world’s population and more than one-third of global GDP. China is the world’s top petroleum producer, while Russia is one of the largest energy producers. India has the rice, Brazil produces the coffee and soybeans, and South Africa is quickly becoming a sizable contributor to the global commodities market. Still, any emerging threat will be years, if not decades, in the making. For Trump, it might be about finishing the party before Xi, Putin, or Narendra Modi even turn on the music and dance the jitterbug.
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