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December 2, 2024 - 6:30pm
Having already threatened to impose tariffs on Mexico and Canada, the America’s biggest trading partners, Donald Trump next trained his sights on the Brics. “The idea that the BRICS Countries are trying to move away from the Dollar while we stand by and watch is OVER,” he posted on X over the weekend. “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.”
It was an odd post, given that the probability of a Brics currency replacing the dollar is pretty much zero. For now, there’s no serious blueprint on the table for any sort of rival currency to the dollar. The greenback remains unrivalled in world finance, accounting for 54% of global trade invoicing, 58% of foreign exchange reserves and 84% of foreign exchange transactions. And while it’s true that many governments have been steadily diversifying away from the dollar in their reserve holdings, so far, they’ve gone mainly into the currencies of the US’s closest allies, most notably the euro. Use of China’s renminbi in global foreign exchange reserves has actually fallen, from an already paltry 2.8% peak in 2022 to 2.3% today.
However, it’s precisely this kind of belligerence that bolsters those who call to abandon the dollar. And in a fight like this, the US doesn’t hold the cards, let alone enjoy the sort of advantage it does when talking tough with Mexico or Canada, both of which have an asymmetric trade dependency on America. The US actually enjoys trade surpluses with several Brics countries, which means that if they chose to retaliate with tariffs of their own, US exporters would feel the pain.
The two Brics members which would stand to lose most in a trade war with the US are China and India. The first is already bracing for Trump tariffs, so probably won’t be much cowed by this rhetoric. The second, India, is America’s closest natural ally in the Brics, and the fledgling group’s staunchest opponent of a Brics currency. Picking a fight with Delhi at a time like this hardly seems a clever move.
Besides, there is a basic flaw in Trump’s plan to simultaneously lower the US’s huge trade deficit and maintain dollar hegemony. Dollar dominance actually depends on that trade deficit. Because the world as a whole runs such a large trade surplus with the US, they accumulate those dollars in US bank accounts. If their surpluses diminish, not only will dollar reserves decline, but interest rates in America will likely rise (since so much of foreign holdings is placed in US Treasury paper).
So why Trump posted that rant is unclear. It would seem, if anything, to reveal an insecurity on his part about the future of the dollar which, incidentally, his talk of building a strategic bitcoin reserve is doing little to alleviate, since replacing the dollar is bitcoin’s raison d’etre. But what his message didn’t reveal was much in the way of strategic vision. It’s not the best look for a claimant to superpower status.
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SubscribeTariffs are a tax on consumers. All they have to do is make them revenue neutral and they can preclude foreign made from home made.