Trump is a Dollar patriot and this has been his stance since his first administration. Recall his position on China currency manipulation and his constant criticism that China has been devaluing the Yuan to make its export cheaper abroad. China did not fully float its currency in response to Trump’s criticism; instead, it managed the exchange rate through a combination of market forces and central bank intervention. For instance, the People’s Bank of China (PBOC) allows the Yuan to trade within a narrow band around a daily reference set by the PBOC. China’s ability to dare Trump’s threat is strongly connected to their dominance in global trade, which has allowed them enjoy elasticity in the demand for their exports abroad. In other words, there is very little you can do without China. China believes the US can push for domestic production all it wants, it would still be unable to supply its entire market by itself. Whether or not that is true depends on some empirical analytical assessment.
Since Trump’s success at the polls, he has wielded the force of tariffs on major suppliers to the US markets, with one goal in mind – either reduce the exports from other suppliers and produce locally to keep the Dollar in America or allow the exports to flow and get suppliers to pay heavy tariffs to fund the America first dream. The latest in his doggedness is his comment on the BRICs. Quoted verbatim and paraphrasing, Trump noted that “the idea that the BRICs 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 they shoud expect to say goodbye to selling into the wonderful U.S. economy”. Trump’s choice of superlative adjectives to describe the U.S. economy speaks volume of the indispensability of the U.S. economy. South Africa, a member of the BRICs, debunked the claims on a uniform currency, stating that current plans are to use the currencies of the individual countries for trade. That is, a south African exporter can sell their export in Ruble to Russian importers as opposed to using the Dollar or an alternative uniform currency. Frankly speaking, there is no difference since the Dollar is not utilized and depending on the volume of trade between the BRICs, the de-dollarization impact could be significant. According to Bloomberg, they also noted that he bloc’s New Development Bank continues to rely on the dollar for its investments, which have exceeded $30 billion in member states and other developing economies.
If the uniform currency proposed by the BRICs would be a strong substitute for the Dollar, why hasn’t it been launched yet? In a previous article, I noted how difficult it is to replace the Dollar as the world’s reserve and trading currency. At the foremost of the requirements is the psychological inclination towards the Dollar. This simply means that people use currencies they trust in terms of stability and value. The Dollar has proven over time to be a strong store of value and medium of exchange at the global level. Most global commodities from gold to oil are priced in Dollars. The big banks use Dollar as the major currency for their financial transactions including bond trading, FX trading and derivatives pricing. Additionally, the Dollar’s dominance is held up by the elevated demand for US treasuries, the growth of the US economy, the size of the US consumer market and the denomination of reserves of major central banks in Dollar. Moreover, moneary and exchange rate policy coordination may be assiduos task leading to currency conflict as countries within the bloc may disagreee on the best approach to manage currency values, interest raes or foreign exchange policies. With these points in mind, you’d wonder why Trump is even worried. Herein lies the problem – monetary cooperation in the BRICs has far-reaching consequences beyond a threat on the Dollar. With monetary cooperation comes the emergence of a central bank (the New Development Bank), which acts as an alternative to the Bretton Woods Institutions, essentially crowding out their clientele. Like OPEC+, the presence of a monetary cooperation in the BRICs may present a complex challenge on exchange rate for the Fed and US treasury given that China and Russia are members of the BRICs and both countries are averse to market- determined exchange rate.
It is imperative to understand how far Trump can go with his 100%. I think it depends on the relative importance of the BRICs to the US and otherwise. The table below provides a simple descriptive analysis as evidence of the bilateral relationship. In terms of exports revenue, the table puts the average contribution of the BRICs to US export revenue from 2021 to 2023 at 13.0% while the US contributed 14.3% of the BRICs export revenue. The difference is not material, but shows that BRICs rely slightly more on the US for its export revenue than the US does on the bloc. Likewise, the result also shows that exports from the BRICs covers 21.5% on average of US imports need between 2021 to 2023 while the US covers 7.1% of the BRICs imports need. Considering that the BRICs contains China and India, which are two populous countries, the result indicates that relatively, the BRICs do not rely so much on the US to meet its domestic consumption needs, but it does rely on the US for its exports revenue.
| 2021 | 2022 | 2023 | |
| BRICs exports to the US | 710,825,127 | 726,657,000 | 628,290,838 |
| BRICs exports to the world | 4,653,490,903 | 5,083,261,517 | 4,678,346,660 |
| BRICs import to the US | 285,914,030 | 292,381,967 | 256,411,908 |
| BRICs import from the world | 3,852,606,042 | 4,032,283,242 | 3,787,761,662 |
| US exports to the world | 1,754,300,368 | 2,062,937,261 | 2,019,159,665 |
| US exports to the BRICs | 250,295,578 | 262,977,028 | 240,483,734 |
| US imports from the world | 2,935,314,152 | 3,375,948,186 | 3,172,533,052 |
| US imports from BRICs | 696,470,319 | 738,015,527 | 595,488,268 |
| BRICs contribution to US export revenue | 14.3% | 12.7% | 11.9% |
| US contribution to BRICs revenue | 15.3% | 14.3% | 13.4% |
| BRICs contribution to US imports need | 23.7% | 21.9% | 18.8% |
| US contribution to BRICs imports need | 7.4% | 7.3% | 6.8% |
Source: Author’s analysis using ITC data
Another approach to the bi-lateral dependency is to take a closer look at the component of the BRICs exports to the US and otherwise. The top five exports from the BRICs to the US are mineral fuel and oils, machinery and equipments (including electrical), precious metals, aircrafts and chemicals and pharmaceuticals. On the other hand, the US export profile to the BRICs countries is characterized by advanced technology (machinery, aircraft and electronics), energy profucts, agricultural goods and chemicals. Clearly, the export profiles are similar with the nuance that the US likely depends more on the BRIC countries for agricultural exports while the BRIC countries depend more on the US for machineries, aircrafts and military artileries. Therefore, it is safe to assume that the US and the BRIC countries are not extermely mutually exclusive which means that a 100% on the BRIC countries will clearly hurt both parties, with more loss of export revenue on the BRIC countries. This would explain the jittery stance of South Africa and the quick move to debunk the claim on a uniform currency.
Like I always advance, the Dollar is going nowhere; it’s a sine qua non as far as global trade is concerned and if a stronger currency will emerge, it will take some time. Other long standing currencies like the Euro and the British Pounds are still unable to beat the dollar at its game. That said, it is likely that Trump is simply exploring means to tax the BRIC countries; not necessarily because of their cause for a uniform currency, but for other economic and political reasons such as the impact of the overcapacity issues in China and the invasion of Ukraine by Russia. That said, I do not think Trump will levy 100% tariff on the BRIC countries; instead, I think he will pick them in pieces and implement different tariff plans. The impact then depends on whether those countries chose to retaliate or not. If they decide to retaliate, the WTO will get more worked up over the next four years facilitating trade negotiations and round table discussions, most of which may end in a stalemate.
