Macroeconomic Color: President-Elect Trump and the BRICS
A Losing Proposition
Candidate Trump famously said that the most beautiful word in the English language is “tariffs”. President-elect Trump is making them the centerpiece of his economic policies, threatening new ones against friend and foe alike. In his latest iteration of trade wars, Trump is demanding that the BRICS1 countries abandon any efforts to create a new international currency as an alternative to the U.S. dollar, or face 100% tariffs. Clearly, the president-to-be has little understanding of international economics, financial or currency markets. Maybe he should have checked with his choice for Secretary of Treasury, Scott Bessent, before launching in his latest diatribe. Bessent could have mentioned few salient points:
· The dollar is the main global currency, accounting for 88% of the daily volume of foreign exchange transactions of $7.5 trillion. While there has been a gradual erosion of the dollar’s global position, there are no existing or potential challengers to the greenback’s “exorbitant privilege” in global markets. The dollar’s position is not the result of any U.S government fiat, but comes from its historic legacy, the economic and financial strengths of the U.S. economy and its financial markets, as well confidence in the United States economic stewardship.
· The BRICS are currently focusing on developing alternative payment and settlement systems, not discussing the creation of an alternative currency. Moreover, the BRICS include some of the United States’ major challengers and/or competitors (China and Russia), as well as some of the country’s major trading partners and/or allies (India, Brazil and the United Arab Emirates).
· As such, starting a new trade war with BRIC countries can only be counterproductive, since an U.S. punitive tariffs will result in countervailing tariffs. Furthermore, any trade war will adversely affect the global supply chains, inflicting further pain on the U.S economy.
· Considering that U.S. friends and foes alike are already pushing back against dollar weaponization, any further bullying by the U.S can only result in a further long-term erosion in the U.S. dollar’s global position and encourage geo-global economic fragmentation
· Finally, repeated threats of trade wars and tariffs are reaching the point of diminishing returns and effectiveness
The BRICS organization include the original ones (Brazil, Russia, India, China and South Africa), as well as new members-The United Arab Emirates, Saudi Arabia, Ethiopia, Iran, and Egypt. Argentina became a member in 2024 , but recently withdrew form the organization