Trump's tariff war

US President-elect Donald Trump continues to make headlines in world capitals, even though he will not be taking up the job for another seven weeks. His latest announcement came in the form of a 'Truth', as posts on his Truth Social platform are called - a threat to impose 100% tariffs on BRICS nations. The threat came in response to a proposal to introduce BRICS Pay, which was being reported as a common currency, but is more akin to a digital payments alternative for providers that are currently dependent on the Society for Worldwide Interbank Financial Telecommunication (SWIFT), which is the primary international dollar-denominated payments network.

Tariffs are a tax on imported goods that is paid by the importer, and generally passed on to the consumers. This means that any tariffs would be paid by Americans, who would thus suffer due to higher prices. The only reason an exporter would suffer is if the higher prices reduce demand, and several goods have inelastic demand, meaning that they must be imported at any price because the US does not or cannot produce them. Trump has falsely claimed for almost a decade that tariffs only hit exporting countries and have no impact on Americans. Either he does not understand how tariffs work or he is lying to fool low-information voters into supporting a policy that goes against their own economic interests.

Experts have also said this and other tariff threats make America look weak, legitimises a "non-threat" and could erode confidence in the dollar, leading to increased adoption of direct currency trading, where use of the dollar is avoided whenever possible. Widespread adoption of such a strategy would indeed erode the dollar's status as the world's reserve currency and place a bit of pressure on the US economy. But even prominent BRICS members don't want this - most notably China and India, for whom the US remains a key market. Unfortunately, while Trump's advisers continue trying to explain to him the intricacies of international trade, global economic stability will suffer.