How far Donald Trump’s BRICS tariff threat can become a reality

Too many overlapping tariffs are likely to harm American interests by raising domestic consumer prices. To put American interests first, President Trump might have to balance his initiatives in Trump 2.0 and distinguish sharply between friend and foe

Trump wants reciprocity from perceived friends in Europe, the EU, and NATO, as well as strategic partners such as India and Taiwan and an economic/military rival like China. AP

President-elect Donald J Trump wants to ‘Make America Great Again’. This stated ambition and powerful campaign slogan that, in Trump’s scheme of things, means making America extraordinarily dominant again has a great number of moving parts.

In this preparatory period leading up to his inauguration on January 20, 2025, he has been appointing a large number of capable loyalists to key positions in his forthcoming administration. That some of his key picks, such as his intelligence chief, his FBI director, Kash Patel, and the co-head of office to cut wasteful government spending, Vivek Ramaswamy, happen to be American Hindus of Indian origin is remarkable.

Stopping both the wars in the Middle East and Europe is central to his early policy-making, along with strong measures to strengthen the US economy. Trump is particularly provoked by the fact that a number of countries, including China, Brazil, and India, impose steep tariffs on US goods, some as high as 150 per cent. He has made it clear that he too will impose tariffs likewise on imports from such countries unless there are changes in the spirit of ‘reciprocity’.

For the US economy, Trump envisages a revival of American manufacturing and new high tariffs on direct imports from China, which enjoys an obscene trade surplus, as well as other countries such as Mexico and Canada that China funnels its goods through in an attempt to evade the tariffs imposed earlier.

Trump also wants reciprocity from perceived friends in Europe, the EU, and NATO, as well as strategic partners such as India and Taiwan and an economic/military rival like China.

Allies of America across the Atlantic, the UN and its bodies, and other international institutions such as the key international lending agencies, the World Bank, IMF, and Asian Development Bank have long been used to America footing the lion’s share of the bill for most things. The same applies to the various UN peacekeeping forces in the many troubled parts of the earth.

And all this, without any payback or reciprocity for America, beyond a perfunctory thank you, and a degree of differential behaviour from allies such as the UK. It is as if the security of the free world is principally America’s business ever since World War II. Perhaps this is because it maintains a formidable military machine and has massive annual armed forces/armaments budgets to keep its No. 1 position. It also maintains the world’s largest covert apparatus in the form of the CIA for the world and the FBI domestically.

Other NATO allies have long contributed token amounts financially at best and provided some supporting forces to joint operations. In Trump 1.0, the president exhorted all NATO allies to contribute their proportionate share and raise defence budgets to at least 2 per cent of their GDPs. Protecting Europe, including Ukraine, should not be principally an American endeavour, according to Trump’s worldview. This has made many allies uncomfortable at the prospect of a free lunch coming to an end. Others are apprehensive about their ability to finance their own security. Donald Trump does not like this long-playing scheme of things, particularly since American debt is now at twice its GDP, and notionally every American citizen is carrying $100,000 of this debt.

The US dollar is used as a peg for a number of international currencies, such as the Saudi riyal. And because it is the main currency of international trade, American sanctions against countries like Russia and Iran have had a strong bite. Russian assets worth billions of US dollars have been frozen and confiscated. This kind of high-handedness makes many other countries holding US bonds and other investments apprehensive. It is a reason for seeking alternative trading mechanisms.

At the same time, international dollar demand keeps interest rates payable by the US on its gargantuan external debt lower than they might have been. Interest rate cuts by the Federal Reserve Bank, which has begun its cutting cycle at long last, have the potential to weaken the dollar, making imports costlier but making US exports more competitive. Rate cuts should also stimulate the US domestic economy as inflation appears to be moderating.

Trump has proclaimed on his own ‘Truth Social’ platform very recently that he will not allow America to be ‘suckered’ henceforth. Anyone in the expanded BRICS (read China in the main) that is trying to develop its own BRICS currency to get away from the US dollar in international trade runs the risk of 100 per cent US tariffs imposed. This would make it well-nigh impossible to sell to the US.

The strong US dollar as the global reserve currency, as well as the currency of choice for international trade, has been a basic pillar of the world’s financial system since the aftermath of WWII. India readily recognises this fact of life and has made it clear at BRICS that it does not support universal ‘dedollarisation’. Coming up with a BRICS currency of its own, if it isn’t the Chinese renminbi, which is not acceptable to India, is not easy, given the size and uneven financial state of the BRICS members.

And yet, the US dollar has declined as a global reserve currency from 71 per cent in 1999 to 59 per cent in 2023, making room for a basket of currencies. The Euro is now held at 20 per cent. Various other convertible currencies, including the Yen account for another 19 per cent. However, the Chinese renminbi as a reserve currency is still struggling at 3 per cent, up from a mere 1 per cent in 2016. This may be a trebling statistically, but it is far from where it wants to be.

India, which still does not have a fully convertible rupee, will, and has been trading with countries on a bilateral basis when both prefer to use their own currencies. It has done so notably with Russia, as the latter is working under stringent Western sanctions for its war with Ukraine. India has bought a large quantity of petroleum from Russia at very competitive prices in rubles/rupees, even as it continues to buy oil and gas from other nations using the US dollar.

India imports 80 per cent of its ever-growing demand for oil and gas, and is the biggest international buyer next to China. China too has been using the yuan/Saudi riyal for its oil purchases lately.

America is fuel self-sufficient and buys internationally only in order to conserve its own reserves.

Is Trump’s latest threat of 100 per cent tariffs to BRICS likely to be implemented? Are unilateral sanctions actually hastening the reducing influence of the US dollar?

Too many overlapping tariffs are likely to harm American interests by raising domestic consumer prices. In order to keep American interests first, President Trump might have to balance his initiatives in Trump 2.0 and distinguish sharply between friend and foe.