BRICS new currency plan and Trump's tariff threat
US President-elect Donald Trump's 100% tariff threat to a bloc of nine nations, called BRICS, while cautioning them against replacing the mighty US dollar with a new currency, shows that Washington is afraid of losing its global hegemony over the financial architecture. Since election, Trump has been trying to outwit his opponents, especially China and Russia.
The recent threat and pressure can defer the plan of introducing the BRICS currency for the time being, but the grouping of emerging nations will not completely nudge away from it.
If BRICS members are determined to introduce their own currency to reduce reliance on the US dollar, they can face some repercussions because counter-actions could be taken by the US including using the tool of sanctions, forming alliance with non-BRICS countries and tapping financial institutions to exert its economic influence. In response, BRICS can also explore alternative financial frameworks.
Economic and public policy expert, corporate and management consulting firm Director and Audit Committee of Character Education Foundation Chairman Qanit Khalilullah said Trump's tariff threat underscored US fears of losing its global economic dominance.
However, his ability to impose steep tariffs is constrained by the expected domestic inflation, as a result of higher tariffs, particularly on imports from China. Inflation has been a key issue facing the US economy over the last couple of years.
The strong dollar, driven by its reserve status in international trade, provides financial gains but also erodes US manufacturing competitiveness – a key focus of Trump's agenda.
Meanwhile, China's significant role in global trade bolsters the yuan's gradual ascent, further challenging the dollar's dominance.
The US pressure may delay but it is unlikely to derail BRICS' plans for a new currency or efforts to strengthen the yuan's role in international trade. China's dominant trade position and Russia's strategic geopolitical influence ensure that the momentum will continue towards reducing reliance on the dollar.
Moreover, the US inflation and the inevitable consumer backlash against tariff-induced price hikes significantly constrain Trump's ability to exert effective pressure, allowing BRICS to press ahead with their agenda.
The US could impose sanctions, leverage financial institutions or strengthen alliances with non-BRICS nations to uphold its economic hegemony. However, these measures may only offer temporary relief.
"The idea that 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 US dollar or, they will face 100% tariffs, and should expect to say goodbye to selling into the wonderful US economy," Trump posted on Truth Social recently.
Against the Trump threat, BRICS nations may consider responding with collective action, such as deepening trade through yuan-centric systems, exploring alternative financial frameworks and presenting a united diplomatic front.
Rising inflation, the yuan's expanding role in global trade and challenges to the US competitiveness could diminish the effectiveness of Trump's threats, potentially encouraging BRICS to advance their pursuit of financial sovereignty.
BRICS had been made up of Brazil, Russia, India, China and South Africa since 2011. Earlier this year, Iran, the United Arab Emirates, Ethiopia and Egypt formally joined - the first expansion in over a decade.
Thirty-four countries have submitted expressions of interest in joining the bloc of major emerging economies, South African Foreign Minister Naledi Pandor said earlier this year.
CNN reported that the leader of one member country, Brazil's Luiz Inacio Lula da Silva, in 2023 proposed the creation of a common currency in South America to reduce reliance on the US dollar.
During the US election in November, Trump campaigned for implementing widespread tariffs. He has escalated the threat of steep levies in recent days.
According to The Economist, On November 25, the US president-elect announced on Truth Social, his social media megaphone, that he would impose a 25% tariff on all products flowing from Mexico and Canada and increase the rate on goods from China by 10%.
Among the hardest hit from the suggested tariffs would be American carmakers. Trump's levies will be painful for American businesses.
US industrialists will have three options ranging from hoarding goods, raising prices and rewiring supply chains. When it comes to the third option, a host of US firms have already started diversifying their supply chains away from China.
China's share in the US-made goods import has gradually dropped a few years ago. The US is highly dependent on its rival China and some other countries. A host of US businesses could become profitless wasteland because a couple of superpowers may appear instead of being only one.
The writer is a staff correspondent