Economy
Should Brics worry about Trump’s threat?
Summary
- The threat has come amid heightened expectations of trade wars, especially with China, and has sparked widespread nervousness over disruptions to global trade and supply chains.
The president-elect of the US, Donald Trump, has threatened the Brics nations with 100% tariffs should they create their separate currency or back any other currency in their attempt to move away from the dollar. The threat has come amid heightened expectations of trade wars, especially with China, and has sparked widespread nervousness over disruptions to global trade and supply chains. While Trump’s muscle-flexing over the dollar cannot be ignored, experts believe such an action is unlikely to be taken by the US for two reasons: first, a Brics currency is nowhere on the horizon and second, tariffs might end up hurting the US as the world’s largest economy runs major trade deficits with major nations in the Brics group.
“A common Brics currency is a long shot given the group comprises a very heterogeneous mix of countries at different stages of economic development and contrasting geopolitical preferences," said Abhishek Upadhyay, economist at ICICI Securities PD. “It is difficult to treat the threat as credible at this stage."
However, Trump’s threat is not completely unfounded. The Brics, which consists of Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Iran, and the UAE and is generally considered an alternative to Western dominance, did affirm their effort last month to establish an alternative payment system to reduce reliance on the dollar. Several nations, including India, have had a non-commital stance towards a common Brics currency so far.
Also Read: Mint Quick Edit | De-dollarization: Trump should target crypto, not Brics
Bickering over Brics
To be sure, despite attempts for de-dollarisation, the US currency remains the king in global currency payments, accounting for 47% of the share, Swift's RMB Tracker for October 2024 showed. No other currency has come close to the US dollar. Even the share of euro, the second largest in global currency payments, is just 23%.
As for Brics, the group has evolved over the years, starting with just four members in 2009 and expanding to nine by 2024. However, the combined GDP of the Brics nations is yet to catch up with the world’s largest economy. The US contributes 28% to the world GDP, while the nine Brics countries contribute 27%. Even though the US beats the Brics group in GDP, the group holds sway in demography and geographical area. The combined population of the Brics nations is about 45% of the world's population compared to the US' 4%. Geographically, Brics' land share is 29% compared to the US' 6%.
Experts believe that the creation of an alternative system that prioritizes the needs of developing countries by promoting trade in local currencies may be a step in the right direction.
Also read: Brics wants to create an alternative financial infrastructure. Here's why it matters
Trade tussle
Trump has already induced nervousness by vowing increased tariffs on China. The threat to Brics nations would push global trade more towards uncertainty. However, the move may end up hurting the US as much as most Brics countries. Higher tariffs on imports will make goods costlier in the US and could also result in retaliatory tariffs by other nations, thus hurting its exports to other countries as well.
The US is heavily dependent on Russia, China, India and South Africa to meet its domestic needs, with the imports from these nations more than twice the exports.
The US is a major trade partner for most countries in the Brics group and runs massive trade deficits with most of them. "With inflation already a major issue in the US, further tariffs would only increase prices for consumers in the US and disrupt supply chains," said Ajay Sahai, director general & CEO of the Federation of Indian Export Organisations. However, Sahai feels the threat is a “forewarning to the Brics group but a little immature at this point."
While increased trade tariffs are expected during Trump's administration, the threat to the Brics group, especially over the creation of a separate currency, may not turn into an action.
Also Read | Brics for India: A trade springboard, not an anti-West wall
