Trump tariffs vs the BRICs: Who wins?

As Trump espoused on his recent Joe Rogan interview, “…the most beautiful word…is tariff ”. If elected, how will his proposed “proper use” of tariffs be received by U.S. citizens, markets and the wider global economy?

Tariff implications

In PIIE’s paper, “International Economic Implications of a Second Trump Presidency ”, the institute models Trump’s tariff policy for 2025-2028 and 2025-2040. The paper asserts that, “these [tariff] interventions reduce GDP and boost inflation in the United States, while in some cases conferring benefits on other economies.”

Arguably, boosted inflation in Trump’s first year could not only irritate voters, but also underpin bond yields. As Bill Gross recently noted, “I think investors should continue to be…at low levels of bonds.”

U.S. bond yields now appear to be pricing in a Trump victory, but will the USD do the same? According to ING’s report, “Groundhog Day for the Dollar? ”? the bank suspects the dollar will not “rally too much further – unless Trump is successful”.

BRICs effect

According to Polymarket , Trump is now a shoo-in. However, will foreign nations and the BRICs still wish to own the USD, and in turn, buy more U.S. debt?

As depicted in Wolf Street’s, “Which Foreign Countries Bought the Recklessly Ballooning U.S. Debt? ”, there is an unwillingness to own U.S. debt internationally. The article illustrates how, “foreign holdings had dropped from the peak of 34% in 2015 to a low of 22.2% by October 2023”.

Despite waning foreign demand, India, has been bingeing on U.S. bonds by “a factor of 6 since 2012”. Conversely, Brazil, “between 2018 and 2021...cut its holdings by about one-third”. Moreover, since January 2023, its holdings have not increased materially.

Following the BRICs summit, it is clear the group has some policies, but many are still developing. As Reuters reported , “more than 30 countries had expressed a desire to join the BRICS, though there was little immediate clarity on how the expansion would work”.

Lessons from the Nixon shock

History tells us that tariffs are nothing new. After all, they were one of many measures introduced during the Nixon shock.

In Rockefeller Family Office’s, “Campaignomics: The Election's Financial Impact ”, Jimmy Chang CFA, explains how then Secretary of the Treasury, John Connally, recommended, “…imposing across-the-board tariffs to offset the impact of a weaker dollar.” For market historians and allocators alike, this is prescribed bedtime reading.

Summary

Trump is Marmite i.e. you love him or hate him.

With “America first!” rhetoric, Trump will of course seek to protect U.S. interests. For the BRICs, they will do likewise.

Nevertheless, Trump’s messaging may be better amplified by recalling the late Secretary of the Treasury, John Connally, at the G10 meeting in Rome 1971:

“The dollar is our currency, but it’s [still] your problem”.