The Dollar Supremacy: Is Donald Trump Going to Make BRICS Countries ‘Pay?’

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Today, on the #WhatsHappeningThursday Financial Desk, we have

• BRICS and de-dollarisation: The metaverse of trade
• Trade or Tariff, pick your favourite, says Donald Trump
• The future of Indian trade & economy
• Conclusion

BRICS and de-dollarisation: The metaverse of trade

Of all the things Donald Trump anticipated during his second term in the White House, de-dollarisation did not top his list. He is visibly frustrated about it, says his posts on X and TruthSocial.?

“They can go find another “sucker!” There is no chance that the BRICS will replace the U.S. Dollar in International Trade, and any Country that tries should wave goodbye to America.”

So, why is the President-elect having a commitment issue with the BRICS countries? Let us tell you.?

The BRICS group consists of countries including Brazil, Russia, India, China, and South Africa. For several decades, the landscape of global trade has remained the same, with the US dollar as the cornerstone of the international financial system. This system established the dollar as the anchor currency, pegging it to gold and linking other currencies to the dollar. This provided stability and positioned the dollar at the heart of global trade. Even after the gold standard ended in 1971, the dollar maintained its dominance due to its deep integration into the international financial system and its continued reliability. Over 58% of global foreign exchange reserves are in dollars. As years passed, the US dollar became the world’s primary reserve currency, held by central banks globally for its stability and liquidity. Institutions like the International Monetary Fund (IMF) and the World Bank are doing most of their operations using the dollar, which is enough to showcase the overdominance of the currency in global financial infrastructure.?

De-dollarisation: What is it?

It is the concept proposed by the BRICS countries, in which the countries reduce their reliance on the US dollar as a medium of exchange, reserve currency, or standard for international trade. Countries will trade in regional or national currencies or digital currencies like cryptocurrencies. As a result, central banks and financial institutions will be compelled to diversify their reserves, shifting away from the US dollar and incorporating other currencies such as the euro, yuan, yen, and even gold.

Countries must either develop or adopt alternative payment systems to those dominated by the dollar, such as SWIFT, to reduce reliance on the US currency.

China has already traded with Saudi Arabia using its local currency, the renminbi. Last year, China entered into a deal with the GCC to settle its oil imports in the renminbi. A powerful stance of the petro-renminbi against the old petro-dollar!?

Quite a fix for Mr President-elect, indeed!

Trade or Tariff, pick your favourite, says Donald Trump

“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.”

A bit belligerent, isn’t it? What he did next was even more combative than the above post. A 100% tariff on goods imported from the BRICS countries!

During his campaign, Donald Trump adopted a protectionist stance, emphasising his commitment to supporting US companies, particularly in the manufacturing sector. He also indicated plans to impose a 20% import tariff on goods from other countries, with a more stringent 60% tariff specifically on Chinese imports. However, after the BRICS increased involvement in proposing and voicing de-dollarisation, he issued a staunch warning, threatening to increase the tariff to 100% for all BRICS countries, including India. This ‘trade- war’ can destabilise the world market while disrupting the economies of leading countries like China, the EU and Mexico. Countries that rely heavily upon exports to the US, including India, will face a slowdown and a decline in goods, leading to reduced economic growth.

As Trump takes office in January, the world is bracing for one of the biggest swings and upheavals in the global economy. He is expected to make import tariffs the cornerstone of the agenda, leading to a restructuring of a worldwide supply chain.?

The future of Indian trade & economy

India has been maintaining strong trade relations with the US for many decades. Interestingly, the US is India’s largest trading partner, with bilateral trade surpassing $120 billion in FY24. Textiles, pharmaceuticals, engineering goods, and IT services have been key components of India's export portfolio to the US. However, Trump’s stance has put India in a difficult position. The imposition of a tariff will force producers to increase the price of goods, thereby reducing their competitiveness in the US market. If Trump's proposed tariffs were implemented, Indian businesses would face increased export costs, reducing trade volumes and potentially slowing economic growth. This could affect India’s capability to maintain its export growth.?

Conclusion

The global economy is on the verge of a massive upheaval. A 100% tariff increase will disrupt trade globally, as it is known today. The upcoming months will be critical for India and the other BRICS nations.?

Thank you for reading. How do you think India will navigate these changing currents? Tell us in the comments.?