Trump threatens a 100% tariff for all the nations that support the de-dollarization strategy of BRICS, including India.

The threat of Donald Trump

The Republican presidential nominee, Donald Trump, announced during one of his speeches (Wisconsin on 7^th September) that he plans to impose a 100 % tariff on goods from countries which have shifted away from the use of the dollar for international trade. Although this statement is controversial, Trump receives overwhelming support from the crowd as the Republican Party is known for putting the interest of the US first; hence, safeguarding the dominance of the dollar is a priority.

Trump has mentioned that he has engaged in extensive discussions with his economic advisor in order to develop a proper plan to penalize nations which have shifted away from dollar use in international trade. The possible measures are currency manipulation charges, tariffs and export control.

Trump has always a big support protectionist policies; he stated in his speech that the dollar has been under major siege for the past couple of years, under the Biden administration. This was a clear indication towards the de-dollarization strategy of BRICS. The dominance of the US dollar has been continuously decreasing; still, it represents 59 % of the official foreign exchange reserve of all the major economies in 2024, dropped from 70% in 1999, followed by the Euro, which accounted for nearly 20%.

What is the de-dollarization strategy?

BRICS nations, which include Brazil, Russia, India, China, and South Africa, have been trying to reduce their reliance on US dollars for international transactions for multiple years. This strategy is referred to as de-dollarization, which is driven by the desire to attain greater economic sovereignty and lower vulnerability to US sanctions. Under this strategy the BRICS members are actively promoting the use of their respective currencies for the bilateral trade transactions.

BRICS nations are developing their own regional payment systems like the New Development Bank (NDB) and the BRICS Payment System (BRICS Pay) that can cut the need for dollars for international trade. The BRICS members are discussion creating a new reserve currency which will act as an alternative currency to the US dollar, which will allow all the nations to trade with each other without using the dollar.

How did US dollars become the currency of the world?

After World War II US emerged as the leading economic superpower of the world as their industrial capacity and financial resources were mostly unaffected during this war. In 1944, in the Bretton Woods Conference, US dollars were pegged to gold, which provided stability and predictability in international trade.

After the World War, economic uncertainty and political turmoil became evident in most of the nation; during this time dollar became a reliable store of value, earning the status as a safe haven currency. Central banks around the world have begun to hold significant amounts of US dollars as foreign exchange reserves because of liquidity and stability. As a result, the US has attained the superpower to dominate the global financial systems.

The need for change

During the Russia-Ukraine war, the world has seen how the US continuously put sanctions upon sanctions on Russia, which was only possible become of the dominance of dollars in global finance. To avoid the same fortune, nations around the world are trying to develop an international trade system that does not require the use of dollars, and BRICS is leading the charge. The US government is not happy with this decision, which is reflected in the voice of Trump in one of his recent speeches.

Why now?

In November 2024 US is holding its 60th quadrennial presidential election, and the main two candidates are Donald Trump from the Republican Party and Kamala Harries from the Democratic Party. The recent polls are showing that the Democratic nominee is actually ahead of Trump. On 10^th September, in Philadelphia’s National Constitution Center, both of these cotenant will be debating; hence, this is the right time to make big moves to draw the attention of the voters. From the beginning, Trump’s campaign has been heavily dependent on National sentiment, and defending the dominance of dollars is a central focus. This move has the purpose of targeting the nationalist sentiment of the US voters and winning the election.

Early this year, Trump also talked about imposing a 60 % or more tariff on imports from China and an additional 10% tariff on all US imports to promote the America First ideology. If implemented, this tariff will hamper international trade, and the US economy will also be affected.  

The Way Ahead

The way ahead is extremely difficult as the US has spent decades building the dominance of the dollars around the world. For BRICS changing this will require concrete efforts and time. Still, the adoption of the new currency of BRICS will be difficult as the US have the most influential economy in the world. The small nations and even those nations in Europe are not likely to shift to the new form of trade as they do not want to hinder their relationship with the US.

The economies of most of the BRICS nations are heavily dependent on US-based companies; hence, avoiding the use of dollars will not be a simple affair. Most of the global transactions to date are conducted with the help of dollars; a complete shift from the dollars might be disruptive and costly.

It needs to be mentioned that BRICS have no intention of scrapping the idea of the launch of an alternative currency to challenge the dominance of dollars in international trade. The development and circulation of a new currency are easier now compared to the past because of blockchain technology. The US dollar was removed from the gold standards in 1971, making it volatile, just like most of the currencies of major economies.

However, the BRICS members are increasing the gold reserves as a store of value to hedge against any uncertainty, which might prove to be a game changer. All of the nations which are a part of BRICS are collaborating on financial projects to strengthen their economic ties and end the dominance of dollars.

Even if Trump wins the 2024 election still, the implementation of a 100% tariff will require overwhelming support from Congress. US have signed multiple international treaties with most of the nations which is the reason implementing this regulation might not be a possibility, since there can be backlash from the UN and WTO.

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