Analysts warn that placing tariffs on BRICS+ may cost the US economy billions of dollars. Picture: Supplied
AS the world moves towards a far more divided world with wars and economic sanctions tearing countries apart, analysts have warned that placing 100% tariffs on BRICS (Brazil, Russia, India, China, and South Africa) as promised by President-elect Donald Trump may cost the United States consumers billions of dollars.
Economic and political analysts continued to react with shock after Trump’s threats to sanction BRICS+ countries considering using alternate currencies to the dollar following complaints that the US had weaponised the dollar to disrupt and influence policy direction in developing countries.
While some countries were quick to distance themselves from pursuing de-dollarisation, geopolitical analyst Joe Mhlanga said Trump, like other previous US leaders, was employing a colonial mindset that would hurt the US economy.
“BRICS members are aware of the threats before them. They knew they would face difficulties ahead, so they voluntarily decided to create an alternative to boost their economies as they felt the other global institutions and forums were not helping their economies.
‘It does not make sense why one country would want to economically bully others if it has nothing to do with ruling over others by force and coercing nations to exercise hostility towards other sovereign countries.
“The beauty about the US tariffs, no matter how hurtful they are, is that they force the global south to think of quick ways to counter these economic sanctions by the US. When Trump attempted the same thing with China, it cost the US economy more than $80 billion (R1.4 trillion),” Mhlanga said.
Mhlanga said BRICS+ was led by leaders determined to create a new free world order.
According to the Bank for International Settlements, the dollar accounted for about 88% of all trades in the $7.5 trillion-a-day foreign exchange market, based on the latest triennial survey from the Bank for International Settlements published in 2022.
BRICS+ members control more than 40% of central bank reserves globally and have discussed ways to reduce reliance on the greenback, including the idea of a single currency between them.
Cindy Lau, head of fixed income at Avanda Investment Management Pte. in Singapore, told the Economic Times last week that Trump’s threat indicated that he wanted the US to continue dominating the global economy.
“Regarding this specific threat, it doesn’t appear realistic, and the probability is low. However, it serves as a good reminder that President-elect Trump wants to keep the US dollar as a reserve currency and is unlikely to devalue it proactively.
“This also reaffirms our thinking that tariffs will be continually used as a threat in his term, to serve his objectives, and as a powerful bargaining tool,” she said.
Brazil and China had previously struck deals to settle trade in their local currencies. At the same time, India and Malaysia inked an accord to increase the use of the rupee in cross-border business.
In May, Thailand and China’s central banks signed a memorandum of understanding to promote bilateral transactions in local currencies. Trump’s latest comments may increase the likelihood of such agreements being made.
Dhruv Tanna, head of compliance and money laundering reporting at PhillipCapital, an integrated financial institution based in Dubai’s DIFC, told the National News last week that imposing tariffs on BRICS+ nations for pursuing de-dollarisation might accelerate those countries’ efforts to create alternative financial systems, reducing reliance on the US dollar and potentially weakening its global dominance while fostering closer economic ties among BRICS+ nations.
“It could also escalate trade tensions, disrupt global supply chains, raise consumer prices in the US, and harm US exporters through retaliatory measures,” Tanna said.
Trump also threatened on social media late last month that he would put a 25% tariff on all goods coming from Mexico and Canada unless the two border countries stopped the flow of migrants and drugs into the US.
Now, negotiations seem well underway between the three countries, who have depended on a free trade agreement since the 1990s, to keep their trade relationships intact in a moment of political and economic uncertainty.
On his campaign trail, Trump pledged to make it costly for countries to move away from the US dollar, threatening to use tariffs to ensure compliance.
“You leave the dollar, and you’re not doing business with the US because we are going to put a 100% tariff on your goods,” Trump said at a rally in Wisconsin in September.
This prompted Russian President Vladimir Putin to respond in October, accusing Western powers of “weaponising” the dollar, saying at a British summit in Kazan that sanctions against Russia undermined the sovereignty of other nations.
According to the BRICS+ nations, the Covid-19 pandemic served as a watershed moment in several ways, including marking the point when the global economic power dynamic changed in favour of developing countries.
Data shows that beginning in 2020, the BRICS nations as a whole now contribute more to global Gross Domestic Product (GDP) than the G7 industrialised nations do in terms of purchasing power parity (PPP).
thabo.makwakwa@inl.co.za