Trump threatens 100% tariffs on BRICS if dollar is undermined

Trump threatens 100% tariffs on BRICS if dollar is undermined

Sub : Eco

Sec : external sector

Context:

• President-elect Donald Trump has threatened 100% tariffs against the BRICS nations (Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Iran, and the UAE) if they pursue efforts to undermine the U.S. dollar, including creating a new currency or backing alternatives.
• BRICS countries are exploring non-dollar trade options, citing the U.S.’s control of the financial system as problematic.

Importance of US Dollar:

• The U.S. dollar represents about 58% of global foreign exchange reserves, as reported by the IMF. Additionally, many commodities, including oil, are still traded in dollars, reinforcing its dominance in international markets.
• However, emerging economies, particularly in the BRICS alliance, have sought alternatives to reduce dependence on the US dollar.

Current Outlook for the Dollar:

• Research suggests that while there are movements toward de-dollarisation, the US dollar is unlikely to lose its dominant role as the global reserve currency in the near future.
• The infrastructure and trust in the US dollar remain significant barriers to any immediate challenges to its supremacy.

De-dollarisation:

• De-dollarisation refers to the process by which countries reduce their reliance on the US dollar for international trade, finance, and as a reserve currency.

Key drivers of De-dollarisation:

• US sanctions on countries like Russia, Iran, and others have encouraged these nations to seek alternatives.
• Perceived overreach by the US in using the dollar as a political tool.
• Emerging economies like China and India want to promote their currencies in international trade.
• Reduced dependence on a single currency minimizes exposure to exchange rate volatility.