Trump vs BRICS (Threats, Tariffs & De-Dollarisation)

• Complete dollarization:
• It implies that foreign currency is the only legal tender in the country.

• The dollar is the world’s reserve currency, which means it is used in most international transactions.
• As a result, changes in its value have implications for the entire global economy.
• It is the "invoicing" currency of the world and holds the most purchasing power.

• A strong dollar could hurt the rest of the economy in these likely ways:

• BRICS is an acronym that refers to a group of five major emerging national economies: Brazil, Russia, India, China, and South Africa.
• The term BRIC was coined by British economist Jim O’Neill in 2001 to represent emerging economies of Brazil, Russia, India, and China.
• 1st BRIC Summit was held in Russia in 2009 while BRIC became BRICS with the inclusion of South Africa in 2010.
• The group began holding annual meetings starting in 2006 on the sidelines of the UN General Assembly (UNGA), and its success led to formal summits.
• Recently new members were added namely, Egypt, Ethiopia, Iran, and the United Arab Emirates (UAE).

• At the recent Brics summit in Russia's Kazan, a symbolic banknote displaying the flags of Brics nations was also introduced, sparking conversations about the future of global finance.
• However, Russian President Vladimir Putin clarified that the bloc is not currently considering a unified Brics currency or developing an alternative to the SWIFT payment system.
• However, the Brics nations have been exploring strategies to reduce reliance on the US dollar, including the potential creation of a shared currency to facilitate trade within the bloc.
• Putin and his Brazilian counterpart Luiz Inacio Lula da Silva are the strongest proponents of the new currency.
• While China has not explicitly expressed a view, Beijing has supported initiatives to reduce reliance on the dollar.
• India, meanwhile, is a lot more cautious about the idea.

• The group of five countries –Brazil, Russia, India, China and South Africa was formed in 2009 to focus on the interest of emerging economies and to make them less dependent on the US dollar.
• In April 2023, Brazilian President Luiz Inacio Lula da Silva urged BRICS nations to create a common currency for trade and investment between each other, as a means of reducing their vulnerability to dollar exchange rate fluctuations.
• He suggested that a BRICS currency will increase our payment options and reduce our vulnerabilities.
• In October 2024, Russian President Vladimir Putin called for a new international payments system at a BRICS summit in Kazan, stating that the dollar is being used as a weapon by the US.
• Russia is working on creating a settlement and payment infrastructure that would bypass the Swift payment system based in Belgium.
• There was little enthusiasm for Putin's plan, but BRICS leaders did agree to facilitate more trade in local currencies, cutting their reliance on the dollar.
• As per Russian Deputy Prime Minister Alexei Overchuk, about 92 percent of trade settlement between Russia and China is now conducted in Russian rubles and Chinese yuan.

• Recent global financial challenges and aggressive US foreign policies have prompted the BRICS countries to explore the possibility of new currency

• India’s cautious stance on the BRICS currency notion underscores its desire to maintain a balanced foreign policy.
• While India supports de-dollarisation in principle, it acknowledges the risks of alienating the US, its most significant trading partner.
• As per EAM S. Jaishankar, “From time to time, people have raised that there needs to be a BRICS currency, but remember, for countries to have a common currency, you need a huge alignment of the very fundamentals of fiscal policies, economic policies, monetary policies, or even political policies,".
• India has legitimate reasons for hesitating on BRICS currency.

Reason	Analysis
India’s economic growth trajectory	India’s economic growth trajectory and trade relationships do not necessitate a drastic pivot towards a BRICS currency. The US dollar plays an integral role in India’s trade and financial transactions, and the USA has been reluctant to jeopardise profitable trade agreements with the West by endorsing a currency viewed as a direct challenge to the dollar.
China’s influence within BRICS	India remains wary of China’s influence within BRICS. A common BRICS currency could allow Beijing to further its geopolitical and economic ambitions, potentially at the cost of other member nations New Delhi is particularly cautious about aligning too closely with policies that could deepen Chinese dominance in the bloc.
India’s trade relationship with the US	India’s trade relationship with the US has grown significantly, encompassing crucial sectors such as pharmaceuticals, IT services, and textiles. A 100% tariff on Indian exports, as threatened by Trump, would dramatically increase costs for Indian companies and render their products less competitive in the US market. Such a move could disproportionately affect small and medium-sized enterprises (SMEs) that rely on exports to the US, creating ripple effects throughout India’s economy.

• For decades, the US dollar has enjoyed unparalleled dominance as the world's leading reserve currency.
• According to the US Federal Reserve, between 1999 and 2019, the dollar was used in 96 percent of international trade invoicing in the Americas, 74 percent in the Asia-Pacific region and 79 percent in the rest of the world.
• According to the Atlantic Council, the US dollar is used in approximately 88 percent of currency exchanges, and 59 percent of all foreign currency reserves held by central banks

• Due to its status as the most widely used currency for conversion and its use as a benchmark in the forex market, almost all central banks worldwide hold dollars.
• Additionally, the dollar is used for the vast majority of oil trades.
• Although the dollar's reserve currency share has decreased as the euro and yen have gained popularity, the dollar is still the most widely used reserve currency.
• The potential impact of a new BRICS currency on the US dollar remains uncertain, with experts debating its potential to challenge the dollar's dominance.
• If a new BRICS currency was to stabilize against the dollar, it could weaken the power of US sanctions, leading to a further decline in the dollar's value.
• It could also cause an economic crisis affecting American households.
• While it is unclear whether a new BRICS currency would inspire the creation of other US dollar alternatives, the possibility of challenging the dollar's dominance as a reserve currency remains.
• However, a recent study by the Atlantic Council's GeoEconomics Center released in June 2024 shows that the US dollar is far from being dethroned as the world's primary reserve currency.
• According to former RBI Governor Duvvuri Subbarao,in theory, a BRICS common currency would shield the bloc from the perils of dollar hegemony, but in practice, that project will remain a nonstarter because of both politics and economics.

• The nine economies together constituted 35.8 percent of the global GDP based on purchasing power parity in 2023.
• China alone accounted for 18.7 percent.
• India accounted for 7.9 percent, Russia 3.5 percent, Brazil 2.4 per cent, Egypt 1.2 percent and others accounted for two per cent, according to the International Monetary Fund.

• Donald Trump has demanded that Brics members promise not to create a new currency or support another currency to replace the United States dollar as the world’s reserve currency.
• Mr. Trump warned BRICS that they will have to face 100 per cent tariffs if they do not do so.
• Donald Trump's opposition to BRICS nations' efforts toward dedollarization stems from his concerns about protecting U.S. economic dominance and the central role of the dollar in global finance.

Reason	Analysis
Protection of the U.S. Dollar's Dominance	The U.S. dollar's status as the world's reserve currency provides significant economic and geopolitical advantages. Global demand for the dollar helps sustain lower interest rates for U.S. borrowing. If BRICS nations successfully reduce reliance on the dollar, it could undermine these benefits and challenge the dollar's supremacy.
Threat to U.S. Geopolitical Power	The dollar's dominance gives the U.S. immense leverage over the global financial system, enabling it to impose sanctions (e.g., on Russia and Iran) that rely on restricting access to dollar-based transactions. A successful BRICS de-dollarization strategy could weaken this leverage, reducing the U.S.'s ability to exert influence on global issues.
Economic Implications for the U.S.	A reduced role for the dollar in global trade could lead to: Declining demand for dollars, potentially weakening its value. Reduced foreign investment in U.S. Treasury securities, making it more expensive for the U.S. to finance its debt. Increased costs for imports and higher inflation domestically.
Political Context	Trump's rhetoric often appeals to his "America First" agenda, focusing on protecting U.S. interests against perceived threats from foreign powers. He likely views BRICS' de-dollarization efforts as part of a broader challenge to U.S. dominance. By taking a strong stance, he reinforces his image as a leader who prioritizes U.S. economic and geopolitical power, which resonates with his political base.
Huge trade deficit with BRICS	US Department of Commerce data showed that the country exported goods worth $271 billion to BRICS nations while its imports were to the tune of $578 billion. This left the US with a trade deficit of over $300 billion in 2023. Also, the trade deficit of the US with BRICS nations has been more than $300 billion every year, at least since 2019.

• A tariff is a tax imposed by a country on imported goods or services from other countries.
• Tariff is imposed majorly to protect the domestic producers, but the government also imposes tariffs to reduce imports from other countries, thereby promoting the use of domestic products.

• The benefits of imposing tariffs are listed below:

• Therefore, tariffs protect the nation’s well-being as a whole.

• With less than two months remaining until President-elect Donald Trump assumes office, the self-proclaimed “tariff man” has made his intentions clear, threatening steep tariff hikes of up to 25 per cent on the United States’ top three trade partners—Mexico, Canada, and China on his first day in office.
• Fears of trade conflict are mounting, particularly as the World Trade Organization (WTO) remains paralysed due to the breakdown of its dispute resolution mechanism.
• While Mexico and China have hinted at potential retaliation, Canada has already begun negotiating.
• These tariffs aim to encourage U.S. manufacturing, rebalance trade, and improve government finances.

Some Questions from This Year and Previous Years Interview Transcripts